What is Eric's debt-to-income ratio based on his annual income and debt repayments?

To determine Eric's debt-to-income ratio, you need to calculate the ratio of his total monthly debt payments to his monthly gross income, expressed as a percentage. The debt-to-income ratio is a crucial metric that lenders use to assess an individual's ability to manage monthly payments and repay debts.

If Eric's annual income is known, you can calculate his monthly income by dividing that figure by 12. Then, you would add all of his monthly debt obligations—for example, payments on loans, credit cards, or mortgages. By dividing the total monthly debt by the monthly income and then multiplying by 100, you arrive at the debt-to-income ratio.

When this calculation results in 41 percent, it reflects a situation where for every dollar of income, $0.41 goes toward servicing debt. This ratio is significant because, typically, financial advisors advise managing a debt-to-income ratio below certain thresholds; many lenders prefer clients with a ratio under 36 percent. A ratio of 41 percent indicates a higher level of debt in relation to income, suggesting that Eric may face financial strain if his obligations increase or if unexpected expenses arise.

This understanding emphasizes the importance of monitoring and managing debt levels in relation to income, making option C the most accurate representation