Practice Test GeeksAFC - Accredited Financial Counselor Practice Test
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Budgeting & Debt Management Flashcards

7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Budgeting & Debt Management flashcards as text

  1. A client has a $12,000 credit card balance at 22% APR and a $5,000 medical bill with 0% interest. Which debt should they prioritize paying down first using the avalanche method?

    Answer: The credit card because it has the highest interest rate

    The avalanche method targets the highest-interest debt first to minimize total interest paid over time.

  2. Which ratio is most commonly used to assess a client's ability to manage monthly debt obligations relative to their gross income?

    Answer: Debt-to-income (DTI) ratio

    The debt-to-income ratio compares total monthly debt payments to gross monthly income and is a key indicator of debt load.

  3. A client's take-home pay is $3,500/month. Under the 50/30/20 budgeting rule, how much should be allocated to savings and debt repayment?

    Answer: $700

    The 20% category covers savings and debt repayment: 20% of $3,500 = $700.

  4. What is the primary risk of using a home equity loan to consolidate unsecured credit card debt?

    Answer: Converting unsecured debt into debt secured by your home

    Using a home equity loan puts your home at risk of foreclosure if you default, whereas credit card debt is unsecured.

  5. A client wants to use the envelope budgeting system. Which scenario best describes this method?

    Answer: Allocating physical or virtual cash into spending category envelopes each month

    The envelope system pre-allocates cash into labeled envelopes for each budget category, preventing overspending.

  6. Which type of student loan repayment plan bases monthly payments on the borrower's discretionary income?

    Answer: Income-driven repayment (IDR) plan

    Income-driven repayment plans cap payments at a percentage of discretionary income, making them accessible for low-income borrowers.

  7. A client has $400 in monthly cash flow after all expenses. They have no emergency fund and $6,000 in credit card debt at 19% APR. What is the AFC-recommended first step?

    Answer: Build a small starter emergency fund of $500–$1,000 first, then attack debt

    Financial counselors typically recommend a small starter emergency fund to prevent new debt from unexpected expenses while also paying down existing debt.