AFC Budgeting & Debt Management 5

Question 1

Under the Fair Debt Collection Practices Act (FDCPA), which action by a third-party debt collector is prohibited?

Accepted Answer

Contacting the debtor's employer repeatedly to embarrass them

Answer

The FDCPA prohibits debt collectors from using harassment, including contacting employers in ways designed to embarrass the debtor.

Question 2

Which budgeting approach is most suitable for clients with irregular or variable income, such as freelancers?

Accepted Answer

Zero-based budgeting using the lowest expected monthly income as the baseline

Answer

Using the lowest expected income as the baseline ensures essential expenses are covered even in low-income months.

Question 3

A client is considering debt settlement. Which consequence should an AFC counselor emphasize as a major drawback?

Accepted Answer

Forgiven debt amounts may be treated as taxable income by the IRS

Answer

The IRS generally treats cancelled or forgiven debt as ordinary income, which can create an unexpected tax liability.

Question 4

What does a negative net cash flow in a client's monthly budget indicate?

Accepted Answer

The client is spending more than they earn each month

Answer

Negative net cash flow means monthly expenses exceed income, which leads to accumulating debt or depleting savings over time.

Question 5

Which of the following best describes a 'debt management plan' (DMP) offered through a nonprofit credit counseling agency?

Accepted Answer

The client makes one monthly payment to the agency, which distributes funds to creditors at negotiated lower interest rates

Answer

A DMP consolidates payments through the agency and typically secures reduced interest rates and waived fees from creditors.

AFC - Accredited Financial Counselor Practice Test