FiCEP Debt Management Strategies 2

Question 1

What is the debt avalanche method and when is it most advantageous?

Accepted Answer

Paying off the highest interest rate debt first to minimize total interest

Answer

Paying off the smallest balance first

Answer

Consolidating all debts into one payment

Answer

Making minimum payments equally

Question 2

A client has $15,000 in credit card debt at 18-26% APR. What consolidation option should be explored first?

Accepted Answer

Balance transfer to a 0% introductory APR card if qualified

Answer

Home equity loan regardless of value

Answer

Payday loan to pay off the cards

Answer

Borrowing from retirement accounts

Question 3

What is a debt management plan and who typically administers them?

Accepted Answer

A structured repayment plan administered by a nonprofit credit counseling agency

Answer

A court-ordered payment plan

Answer

A self-directed spreadsheet plan

Answer

A plan created by debt collection agencies

Question 4

When might debt settlement be appropriate, and what are its major risks?

Accepted Answer

It may be suitable for severely distressed borrowers but risks tax liability, credit damage, and lawsuits

Answer

It is appropriate for all debt levels with no risks

Answer

It is only available for mortgage debt

Answer

It is required before filing bankruptcy

Question 5

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Accepted Answer

Chapter 7 liquidates assets to discharge debts; Chapter 13 creates a 3-5 year repayment plan

Answer

There is no meaningful difference

Answer

Chapter 13 is only for businesses

Answer

Chapter 7 requires a repayment plan

Question 6

A client pays only minimums on a $5,000 credit card at 22% APR. Approximately how long will payoff take?

Accepted Answer

Over 15 years

Answer

About 2 years

Answer

About 5 years

Answer

About 10 years