CFC Debt Management and Credit Planning 3

Question 1

Which of the following best describes the 'debt avalanche' method compared to the 'debt snowball' method?

Accepted Answer

Avalanche targets the highest interest rate first; snowball targets the smallest balance first

Answer

Avalanche pays the largest balance first; snowball pays the smallest balance first

Answer

Both methods are identical in interest savings

Answer

Avalanche requires debt consolidation; snowball does not

Question 2

A client is considering debt settlement with a creditor for less than the full amount owed. Which is a key tax consequence they should be aware of?

Accepted Answer

Cancelled or forgiven debt is generally treated as taxable income by the IRS

Answer

Forgiven debt is always tax-free under the Mortgage Forgiveness Debt Relief Act

Answer

Debt settlement has no tax consequences if the amount forgiven is under $10,000

Answer

The creditor, not the debtor, pays taxes on any forgiven amount

Question 3

What is the maximum credit utilization ratio generally recommended by financial advisors to maintain a healthy credit score?

Accepted Answer

30%

Answer

10%

Answer

50%

Answer

70%

Question 4

A 30-year fixed mortgage at 7% on a $400,000 loan will generate approximately how much total interest over the life of the loan?

Accepted Answer

$558,000

Answer

$160,000

Answer

$350,000

Answer

$720,000

Question 5

Which credit bureau report scoring model is most widely used by mortgage lenders in the United States?

Accepted Answer

FICO Score 2/4/5 (classic models)

Answer

VantageScore 3.0

Answer

FICO Score 8

Answer

Experian PLUS Score

Question 6

Which of the following is the best description of a 'reverse mortgage' as a debt planning tool for retirees?

Accepted Answer

A loan allowing homeowners 62+ to convert home equity into cash with no monthly mortgage payments required

Answer

A loan that requires monthly principal and interest payments to the lender

Answer

A refinancing product that reduces the interest rate on an existing mortgage

Answer

A government grant program that forgives mortgage debt for low-income seniors

Question 7

When advising a client on whether to pay off a low-interest mortgage early versus investing the extra funds, which financial principle is most relevant?

Accepted Answer

Opportunity cost and expected after-tax investment returns versus mortgage rate

Answer

The rule of 72

Answer

The time value of money only applies to lump-sum calculations

Answer

Credit utilization ratio management