AFC Credit and Debt Management 5

Question 1

A client's credit card balance is $8,000 at 22% APR. If they pay only the minimum payment of $160/month, approximately how long will it take to pay off the balance?

Accepted Answer

Over 10 years

Answer

At high interest rates with minimum payments, payoff timelines extend dramatically — a $8,000 balance at 22% APR with minimum payments typically takes well over 10 years.

Question 2

Which debt repayment strategy prioritizes paying off the highest interest rate debt first, regardless of balance size?

Accepted Answer

Debt avalanche

Answer

The debt avalanche method targets the highest-interest debt first, minimizing total interest paid over time.

Question 3

Under the Fair Debt Collection Practices Act (FDCPA), which action is a debt collector PROHIBITED from taking?

Accepted Answer

Calling before 8 a.m. or after 9 p.m. in the consumer's time zone

Answer

The FDCPA prohibits debt collectors from contacting consumers before 8 a.m. or after 9 p.m. local time.

Question 4

A client has a 'charge-off' listed on their credit report. What does this mean?

Accepted Answer

The creditor has written the debt off as a loss but the client still owes the balance

Answer

A charge-off means the original creditor wrote the debt off as a loss for accounting purposes, but the consumer still legally owes the balance.

Question 5

What is the statute of limitations on debt most directly relevant to?

Accepted Answer

The time period during which a creditor can sue to collect a debt

Answer

The statute of limitations governs the window of time during which a creditor or collector can file a lawsuit to collect a debt.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Credit and Debt Management 5