Fundamentals Flashcards

Which of the following is considered a 'secured' debt?

Answer: Auto loan

An auto loan is secured by the vehicle as collateral, which the lender can repossess if the borrower defaults.

What is the role of the Consumer Financial Protection Bureau (CFPB)?

Answer: To regulate and supervise financial products and protect consumers

The CFPB is a federal agency that enforces consumer financial protection laws and oversees financial products and services.

A client's spending plan shows consistent monthly shortfalls. What is the first counseling step?

Answer: Analyze income and expenses to identify areas for adjustment

Identifying the root cause of budget shortfalls requires a detailed review of both income sources and spending categories.

What is 'credit utilization ratio' and what level is generally recommended?

Answer: Revolving credit used divided by total revolving credit limit; below 30%

Credit utilization is the percentage of revolving credit in use, and keeping it below 30% supports a healthy credit score.

Which document provides a detailed record of a consumer's borrowing and repayment history?

Answer: Credit report

A credit report contains account history, payment records, public records, and inquiries compiled by credit bureaus.

A client wants to understand the difference between a Roth IRA and a Traditional IRA. Which statement is accurate?

Answer: Traditional IRA contributions may be tax-deductible; Roth IRA qualified withdrawals are tax-free

Traditional IRA contributions may reduce current taxable income, while Roth IRA qualified withdrawals in retirement are tax-free.

In financial counseling, what does the term 'solvency' refer to?

Answer: Having total assets that exceed total liabilities over the long term

Solvency means a person's total assets are greater than their total liabilities, indicating long-term financial viability.