If you earn $400 a month after taxes, what is the maximum annual debt load according to the 20-10 rule?

To determine the maximum annual debt load according to the 20-10 rule, you first need to understand how the rule operates. The 20-10 rule states that an individual should not borrow more than 20% of their annual income for total debt and should also not spend more than 10% of their monthly income on debt repayment.

In this scenario, with a monthly income of $400, you would first calculate the annual income. Since there are 12 months in a year, you multiply $400 by 12, resulting in an annual income of $4,800.

Next, apply the 20% guideline for total debt. To find 20% of the annual income, multiply $4,800 by 0.20. Performing this calculation gives you $960, which represents the maximum allowable debt load under this rule.

This means that if your total debt exceeds $960, according to the 20-10 rule, you are likely taking on more debt than is advisable based on your income level. This is why $960 is the correct answer, reflecting a practical approach to managing financial risk through the guidance of the 20-10 rule.