Financial Literacy Program Quiz 5

Financial Literacy Quiz 5

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1. What is the primary difference between good debt and bad debt?

Good debt is always tied to secured loans, while bad debt is unsecured

Good debt is used to finance appreciating assets, while bad debt finances depreciating items

Good debt can always be paid off easily, while bad debt is long-term

Good debt never accrues interest, while bad debt does

2. Which of the following is an example of "good debt"?

A loan for purchasing a house

A loan for a luxury vacation

Credit card debt used for non-essential items

A payday loan

3. What is a common disadvantage of using credit cards irresponsibly?

Having access to loans with no interest

Earning guaranteed rewards with every purchase

Immediate eligibility for large loans

Accumulating high-interest debt that can quickly become unmanageable

4. How does the snowball method of debt reduction work?

You pay off your smallest debts first, then move to larger ones

You make equal payments across all debts regardless of size

You focus on paying the highest-interest debt first

You consolidate all debts into one loan

5. What is the primary advantage of the avalanche method of debt reduction?

It minimizes the total interest paid by focusing on the highest-interest debts first

It improves credit scores faster than the snowball method

It simplifies debt payments by consolidating loans

It eliminates smaller debts quickly to increase motivation

6. What does refinancing a loan generally involve?

Selling an asset to pay off the loan balance

Consolidating multiple loans into a single monthly payment

Obtaining a new loan to pay off an existing one, typically at a lower interest rate

Increasing the loan amount to access more funds

7. What is the benefit of consolidating multiple loans?

Allows immediate access to more credit

Guarantees a lower interest rate across all loans

Reduces the total amount of debt

Simplifies managing several debts into a single monthly payment

8. Why is managing credit cards important for financial stability?

Using credit cards frequently helps improve debt-to-income ratio

Credit cards automatically increase monthly savings

Credit cards always offer low-interest rates on all purchases

Responsible credit card use can build a good credit history and improve credit scores

9. How does a credit score impact an individual's financial decisions?

It affects the fees charged for insurance policies

It determines eligibility for loans, the interest rate on credit, and the amount of credit offered

It decides the amount of income you can earn annually

It grants automatic approval for all types of credit cards

10. What is a crucial step to take when recovering from credit card debt?

Ignoring late fees and paying the minimum monthly payments

Avoiding any further use of credit cards even for essential purchases

Increasing your credit card balance to improve credit score

Creating a realistic repayment plan and reducing unnecessary spending

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Financial Literacy Program Quiz 5

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