Debt Management Basics quiz

1What information belongs in a useful debt inventory?

• AOnly creditor names
• BBalance, interest rate, minimum, due date, fees, and account statusCorrect
• COnly the original purchase
• DOnly the largest debt

Why: A useful inventory records each creditor or servicer, current balance, interest rate, required payment, due date, fees, and account status. That makes cost and timing differences visible: two equal balances can behave differently when their rates or terms differ. Figures should be checked against current statements rather than recalled from memory.

2Why is paying only a minimum often slow?

• AMinimums are illegal
• BInterest and fees may continue while only a small part reduces principalCorrect
• CMinimums always increase income
• DThe balance disappears immediately

Why: Paying the required minimum on time may keep an account current, but part of the payment can go to interest and fees rather than principal. A small principal reduction repeated over many periods can produce a long payoff. The account's terms and statement payoff disclosure provide the relevant estimates; the result is not identical for every debt.

3What does the highest-interest repayment method prioritize after required minimums?

• AThe newest debt
• BThe debt with the highest interest rateCorrect
• CThe creditor with the shortest name
• DA random balance each month

Why: After required payments, the highest-interest method directs available extra money to the balance with the highest applicable rate. Under otherwise equal assumptions, reducing the costliest balance earlier can reduce total interest. The comparison changes if rates vary, fees apply, promotional periods end, or a person cannot sustain the planned extra payment.

4What is the main appeal of the smallest-balance method?

• AIt always minimizes total interest
• BIt can produce an earlier completed balance that helps motivationCorrect
• CIt removes minimum payments
• DIt changes interest rates automatically

Why: CFPB's debt action plan presents repayment orders as a trade-off. Directing extra money to the smallest balance can close an account sooner and provide a visible milestone, while highest-interest-first may reduce more interest under the same payment assumptions. Neither label decides affordability, and required payments still need to be considered across accounts.

Source Consumer Financial Protection Bureau

5What should happen before sending extra money to one debt?

• AIgnore every other account
• BPlan for required minimums and essential expenses across the budgetCorrect
• CStop checking due dates
• DOpen another loan automatically

Why: A repayment plan has to fit the money and due dates actually available. Before accelerating one balance, account for required payments, essential expenses, and a realistic margin for irregular costs. Diverting money that was needed elsewhere can create a fee, delinquency, service interruption, or new borrowing, undermining the apparent progress on the target debt.

6Why is a bill calendar useful?

• AIt changes interest rates
• BIt shows amounts and due dates alongside the timing of incomeCorrect
• CIt cancels debt
• DIt replaces account statements

Why: A bill calendar places amounts and due dates beside expected income dates. That reveals timing: total monthly income might cover total bills while the account still lacks cash when several payments arrive before payday. The calendar does not solve an ongoing income-expense gap, but it identifies the specific dates and amounts that need attention.

7If a borrower expects to miss a payment, what is generally better than waiting silently?

• AContact the creditor or servicer early and ask about available optionsCorrect
• BProvide false information
• CIgnore every notice
• DPay an unknown company first

Why: Contacting the creditor or servicer before a missed payment may reveal hardship, due-date, or repayment options and the conditions attached to them. Availability is not guaranteed, and an arrangement can affect fees, interest, account status, or credit reporting. Ask what changes, what remains due, and how any agreement will be documented before relying on it.

8Which debt-relief claim is a warning sign?

• AWe will explain fees and limitations in writing
• BPay us upfront and stop communicating with creditors; we guarantee all debt disappearsCorrect
• CConsider nonprofit counseling
• DReview your statements

Why: The FTC identifies advance fees before a debt is settled, guaranteed results, and instructions to stop communicating with creditors without explaining the consequences as debt-relief warning signs. A claim that sounds certain should be checked against written terms and official guidance. Settlement can involve added fees and interest, credit effects, collection or litigation risk, and possible tax consequences.

Source U.S. Federal Trade Commission

9Why should extra-payment instructions be checked with the servicer?

• APayments can never exceed the minimum
• BYou want to understand how extra money is applied and whether fees or restrictions existCorrect
• CStatements are optional
• DInterest rates are secret

Why: Account terms and servicing practices differ, so an extra payment may not be applied in the way a borrower assumes. Before sending it, ask whether it reduces principal, advances a due date, or is allocated across balances, and check the next statement. Written instructions and confirmation create a record if the crediting appears wrong.

10When can outside help be especially appropriate?

• AWhen debts involve lawsuits, collection threats, unaffordable essentials, or confusing relief offersCorrect
• BOnly after sharing passwords
• CNever
• DWhenever an advertisement promises a secret shortcut

Why: Serious affordability, collection, lawsuit, repossession, foreclosure, or suspected-scam issues can turn on contract terms, deadlines, and local law. A qualified nonprofit credit counselor, attorney, regulator, or other appropriate professional can address facts a general quiz cannot. Seeking help is especially time-sensitive when a notice gives a response or court date.