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

The snowball method prioritizes smallest balances first to create quick wins and motivation, regardless of interest rates.

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

Extra principal payments reduce the outstanding balance, which shortens the loan term and decreases total interest paid over the life of the loan.

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

Most conventional lenders use 43% as the maximum back-end DTI ratio, though 36% is preferred; above 43% typically disqualifies borrowers from qualified mortgages.

Question 4

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

Accepted Answer

800–850

Answer

FICO scores of 800–850 are considered exceptional/excellent, giving borrowers access to the most favorable interest rates and terms.

Question 5

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

Accepted Answer

Avalanche method

Answer

The avalanche method targets the highest-interest debt first, mathematically minimizing total interest paid across all accounts.

CFC - Certified Financial Consultant Practice Test

CFC - Certified Financial Consultant Practice Test

CFC Debt Management and Credit Planning