Jamie Lee Jackson, age 27, full-time student and part-time bakery employee, has just moved into a bungalow-style, unfurnished home of her own. The house is only a one-bedroom, but the rent is manageable and has plenty of room for Jamie Lee. She decided to give notice to her roommate that she would be leaving the apartment and the shared expenses after the incident with the stolen checkbook and credit cards a few weeks back. Jamie had to dip in to her emergency savings account to help cover the deposit and moving expenses, as she had not planned to move out of the apartment and be on her own this soon. Jamie is in need of a few appliances, as there is a small laundry room, but no washer or dryer, nor is there a refrigerator in the kitchen. She will also need a living room set and a television because the only furniture she currently has is a bedroom suite. Jamie is so excited to finally have the say in how she will furnish the bungalow, and she began shopping for her home as soon as the lease was signed.
The home appliance store, Acme Home Goods, was the first stop as Jamie chose a stacking washer and dryer set, which would fit comfortably in the laundry space provided. A stainless steel refrigerator was her next choice, and the salesperson quickly began to write up the order. Jamie was informed that if she opened up a credit card through the appliance store that she would receive a discount of 10% off her total purchase. As she waited for her credit to be approved, she decided to continue shopping for her other needed items.
Living room furniture was next on the list as Jamie went to the local home furnishings retailer who had endless choices of complete sofa sets that included the coffee and end tables as well as matching lamps. Jamie chose a contemporary-style set and, again, was offered the tempting deal of opening a credit card through the store in exchange for a percentage off her purchase and free delivery. On to the big box retailer where Jamie then chose a 52" 1080p LED HDTV. For the third time, a percentage off her first purchase at the big box retailer was all that was needed to get Jamie to sign on the dotted line of the credit card application.
Jamie Lee wants to determine if she can afford the monthly payments for all of her purchases before she completes the application process. Use the information below to determine her debt payment-to-income ratio.
Current Financial Situation
Assets: Income:
Checking account $2,550 Gross monthly salary $3,500
Savings account $8,700 Net income $2,325
Emergency fund $4,200 Monthly Expenses:
savings account
IRA balance $560 Rent obligation $500
Car $4,300 Utilities/Electric $85
Liabilities:
Utilities/Water $60
Student loan $12,300 Utilities/Cable $75
(Jamie is still a full-time student, so no payments are required on the loan until after graduation)
Food $200
Gas/Maintenance $205
Credit card payment $0
Acme Home Goods $2,300 Acme Home Goods $54
(Washer/dryer and refrigerator)
Local Home Furnishings $72
Local Home Furnishings $2,400 Big Box Store $42
(Sofa set)
Big Box Store $1,800
Questions
1. What steps should Jamie Lee take to discover the reason for the denial of her credit applications?
2. Jamie discovers that she has become the victim of identity theft, as her credit report indicates that two credit cards have been opened in her name without her authorization! The police had already been notified the evening of the theft incident in the apartment, but what other measures should Jamie Lee take now that she has become aware of the identity theft?
3. Fortunately for Jamie, she was able to show proof of the theft to the credit bureau and her credit applications for her apartment furnishings were approved. The purchase total for the appliances, living room furniture, and television amounted to $4,250. The minimum payments among the three accounts total $325 a month. What is Jamie Lee’s debt payments-to-income ratio?
4. Oh, no! The television was finally delivered today, but was left on the porch by the delivery company. When Jamie Lee was finally able to attach all the wires and cables according to the owner’s manual, it played for half an hour and then shut off. Jamie Lee was unable to get the television to turn back on, although she read the troubleshooting guide in the manual and contacted tech support from the manufacturer. Jamie Lee lugged the television back to the store, but they would not accept a return on electronics. What should Jamie Lee do now?
5. Jamie Lee now has to juggle the three monthly credit card bills for each of the retailers where she purchased her home furnishings. She is interested in getting one loan to consolidate the three store consumer credit cards so she may make a single payment on the goods per month. Using "Your Personal Financial Plan" sheet 17, compare the consumer loan options that Jamie Lee may consider. What are your recommendations for her to consolidate her monthly consumer charge bills?