Question

Meet Lily. Lily is 25 years old. She graduated college with an Associates degree in General Business and works full-time as an office assistant. Lily really enjoys the company she works for, so she took a lower-paying position in the hopes of getting promoted in the near future. She makes a monthly net income of $2,805.92. Lily lives in a small, one-bedroom apartment approximately 20 minutes from her work. Lily overused credit cards while she was attending college and has the following debts:

Debt
Current Balance
Credit Limit
Interest Rate
Minimum Monthly Payment

Credit Card #1
$6,000.00
$6,000.00
18.9%
$180.00

Credit Card #2
$3,855.66
$4,000.00
23.1%
$115.00

Credit Card #3
$8,168.40
$8,000.00
18.9%
$245.00

Auto Loan
$15,000.00
n/a
2.9%
$285.00

Student Loan
$11,647.90
n/a
3.76%
$150.00

Exhibit 1
Answer This:
1. What is the total amount of Lilys debt payments each month (assuming she is only making minimum payments)?

2. What percentage of Lilys net income is she spending on debt repayment?

3. How do you think Lilys current debts impact her credit score? Explain.

Lilys savings habits are far from perfect. She does not pay herself first and very rarely puts money into her savings account. Currently, she has $79.54 in her account. She lives paycheck to paycheck. Because her salary is lower than she expected, she tries to manage her money each month by keeping a budget.

Here is a snapshot of Lilys monthly budget:
Exhibit 2

Answer This:
4. In what areas of Lilys budget do you think she is overspending? Explain.

5. Is there any category that is left out of Lilys budget that should be included?

Lily decides to visit a local Payday Lender, and they were happy to give her a two-week loan. The Payday Lender is requesting the following information from Lily: a paycheck stub, her next paycheck date, and a current bank statement. She was told that the total fee to borrow the $500.00 would only be $75.00, so she would owe $575.00 on her next payday (this lender charges $15.00 for every $100.00 borrowed). All she would have to do is sign some paperwork and bring a post-dated check for her paycheck date to cover the cost of the loan and fee.

Answer This:
7. What would be the financial impact of Lily taking out this Payday Loan? How do borrowers get trapped in an inescapable cycle of borrowing money when using this type of loan?

Answer 1

The following table gives the clear idea about the Lily monthly debt payment:

Debt Details	Current Balance	Credit Limit	Interest Rate	Minimum Monthly Payment
Credit Card #1
	$6,000.00	$6,000.00	18.9%	$180.00
Credit Card #2
	$3,855.66	$4,000.00	23.1%	$115.00
Credit Card #3
	$8,168.40	$8,000.00	18.9%	$245.00
Auto Loan
	$15,000.00	n/a	2.9%	$285.00
Student Loan
	$11,647.90	n/a	3.76%	$150.00
Total	$44,698.96			$975

Lily monthly debt payment (assuming she is only making minimum payments) = $975

2) Percentage of Lily’s net income is she spending on debt repayment?

The monthly repayment she has to make = $975

Lily’s monthly net income = $2,805.92

As per policy you have to asked question after 3 sub-parts in a separate question