CFC Debt Management and Credit Planning

Question 1

Which debt repayment strategy focuses on paying off the smallest balance first to build psychological momentum?

Accepted Answer

Snowball method

Answer

Avalanche method

Answer

Consolidation method

Answer

Ladder method

Question 2

A client has a $350,000 mortgage at 6.5% with 20 years remaining. Making one extra principal payment per year will most likely result in which outcome?

Accepted Answer

Reduced loan term and total interest paid

Answer

Lower monthly payments

Answer

Elimination of PMI only

Answer

Increased equity without affecting loan term

Question 3

What is the debt-to-income (DTI) ratio threshold that most conventional mortgage lenders prefer borrowers not to exceed?

Accepted Answer

43%

Answer

28%

Answer

36%

Answer

50%

Question 4

Which credit score range is generally considered 'excellent' by FICO scoring models?

Accepted Answer

800–850

Answer

620–659

Answer

660–699

Answer

700–749

Question 5

A client has multiple high-interest credit card balances. Which strategy minimizes total interest paid over time?

Accepted Answer

Avalanche method

Answer

Snowball method

Answer

Balance cycling

Answer

Minimum payment strategy

Question 6

What effect does closing an old credit card account typically have on a borrower's FICO credit score?

Accepted Answer

Decreases score by reducing available credit and average account age

Answer

Increases score by improving payment history

Answer

Has no effect because closed accounts are removed immediately

Answer

Increases score by reducing total number of accounts

Question 7

Which type of bankruptcy allows individuals to restructure and repay debts over a 3–5 year plan while keeping most assets?

Accepted Answer

Chapter 13

Answer

Chapter 7

Answer

Chapter 11

Answer

Chapter 15