Debt Repayment Methods

The main focus of the Debt Snowball Method is:

• Paying off debts from smallest to largest balance

• Paying off debts from highest to lowest interest rate

• Consolidating all debts into one payment

• Negotiating lower interest rates with creditors

List the steps involved in the Debt Avalanche Method.

• Identify all debts and their interest rates, then prioritize by highest interest rate first.

• Pay off the smallest debt first, then move to the next smallest.

• Consolidate all debts into one and pay a fixed monthly amount.

• Pay only the minimum balance on all debts.

What is one disadvantage of the Debt Avalanche Method?

• It focuses on the smallest debts first, which may not be the most cost-effective.

• It requires a large initial payment to start the process.

• It can take longer to see progress compared to other methods.

• It may negatively impact your credit score.

The main purpose of debt consolidation is to:

• reduce the number of creditors

• lower the interest rate on loans

• combine multiple debts into a single payment

• improve credit score

Which of the following is a step in debt consolidation?

• Obtain a consolidation loan

• Increase monthly payments

• Reduce interest rates

• Eliminate all debts

Which of the following is a disadvantage of debt consolidation?

• Simplified payments

• Requires good credit

• Lower interest rates

• Reduced monthly payment

The main purpose of a balance transfer is to:

• reduce interest rates on existing debt

• increase credit card limits

• earn reward points

• avoid paying bills

Which of the following is a step in the debt settlement process?

• Increase the total debt

• Negotiate with creditors to accept a lump sum payment

• Ignore the debt

• Pay more than the total debt

One advantage of debt settlement is:

• It completely eliminates all debts.

• It improves credit score immediately.

• It reduces the total amount of debt owed.

• It guarantees no future financial issues.

Automating payments is important in the context of debt reduction because it:

• ensures timely payments and avoids late fees.

• increases the total amount of debt.

• complicates the payment process.

• has no impact on debt management.