Debt Management

What is debt management?

• A strategy for paying off student loans
• A plan for using credit wisely and reducing debt
• A way to increase credit card spending

What is a credit score?

• A measure of financial wealth
• A number that represents an individual's creditworthiness
• The total amount of debt a person has
• The highest limit on a credit card

How is a credit score calculated?

• By adding up a person's total savings
• By subtracting the amount of debt from total income
• By analyzing a person's credit history and payment behavior

Which of the following is considered good credit?

• A credit score of 400

• A credit score of 650

• A credit score of 800

Answer explanation

A credit score of 800 out of 1000 is considered good credit because it indicates a high level of creditworthiness and financial responsibility.

What does it mean to default on a loan?

• To pay off the loan early
• To miss a loan payment or fail to repay the loan
• To receive a loan with a low interest rate

Which type of debt typically has the highest interest rates?

• Mortgages
• Student loans
• Credit card debt
• Auto loans

What is the purpose of a budget?

• To limit spending and track income and expenses
• To obtain a high credit score
• To borrow money from friends or family

Which of the following is an example of a secured loan?

• Personal loan
• Payday loan
• Mortgage loan
• Credit card debt

Answer explanation

The term ‘secured’ refers to the fact a lender will need something as security in case you can’t repay the loan. This will usually be your home, but it could also be your car, jewellery or other assets.

Secured loans are less risky for lenders because they can take your asset if you can’t make the repayments. Lenders will often lend more and over a longer term than unsecured loans, typically at a lower interest rate.

What is the definition of interest?

• The total amount of money owed on a loan
• The charge for borrowing money, usually a percentage of the loan
• The monthly payment required to repay a debt

What is the recommended debt-to-income ratio for financial stability?

• 50%
• 30%
• 10%
• 70%