Debt Management Strategies Flashcards
7 cards from real FICEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Debt Management Strategies flashcards as text
A client earns $3,200/month net and has $1,600 in monthly debt payments. What is their debt-to-income ratio, and how would a financial counselor generally classify it?
Answer: 50% — considered dangerously high
A 50% DTI ($1,600/$3,200) is considered dangerously high; most counselors recommend keeping total DTI below 36%.
Which type of student loan is eligible for Public Service Loan Forgiveness (PSLF)?
Answer: Federal Direct Loans only
Only Federal Direct Loans qualify for PSLF; FFEL and Perkins Loans must be consolidated into a Direct Consolidation Loan to become eligible.
A creditor sends a client a 1099-C for $6,000 in cancelled credit card debt. The client's total liabilities exceeded assets by $8,000 at the time of cancellation. What IRS exclusion may apply?
Answer: The insolvency exclusion may allow the client to exclude up to $6,000 from taxable income
The IRS insolvency exclusion allows taxpayers to exclude cancelled debt from income to the extent they were insolvent immediately before the cancellation.
What is the primary purpose of a cease communication letter sent to a debt collector under the FDCPA?
Answer: It requires the collector to stop all collection communications except for specific permitted notices
A cease communication letter requires the collector to stop contacting the consumer, except to confirm no further contact or to notify of specific actions like a lawsuit.
In a Chapter 13 bankruptcy repayment plan, how long can the plan typically last for a debtor whose monthly income is above the state median?
Answer: 60 months
Debtors with above-median income must propose a 60-month (5-year) Chapter 13 plan under the Bankruptcy Abuse Prevention and Consumer Protection Act.
A client is considering balance transfer to a 0% APR card for 18 months. Which factor should the counselor emphasize as the most critical risk?
Answer: If the balance is not paid in full before the promotional period ends, deferred interest may apply at the regular APR
Many balance transfer offers impose deferred interest or a high go-to APR on remaining balances once the promotional period expires, potentially eliminating all savings.
When evaluating a client for a Debt Management Plan, which credential indicates the counseling agency meets minimum quality standards?
Answer: Accreditation by the National Foundation for Credit Counseling (NFCC) or Council on Accreditation (COA)
The NFCC and COA are the primary accreditation bodies for nonprofit credit counseling agencies, ensuring adherence to ethical and quality standards.