Personal Finance and Debt Management Quiz

Liability represents debt in personal finance.

Making only minimum payments prolongs debt repayment and increases interest costs.

20-30% of income is typically advised for housing expenses to maintain financial balance.

A secured loan is backed by assets, reducing the lender's risk.

Default occurs when a borrower fails to meet the terms of a loan agreement.

10-15% of income is recommended for savings to build financial security.

APR refers to the interest rate on a loan expressed annually.

Debt consolidation involves merging debts into one for easier management.

Net worth is the difference between what you own and what you owe.

A 401(k) is a tax-advantaged retirement account offered by employers.

Luxury insurance, which covers non-essential items, is not typically recommended for personal finance management.

FICO scores are used by lenders to assess the risk of extending credit to individuals.

Payment history has the most significant impact on credit scores.

The debt-to-income ratio helps assess an individual's ability to manage debt.

An emergency fund should consist of easily accessible funds to cover unexpected expenses.

The debt snowball method focuses on paying off small debts first to gain momentum.

Opportunity cost refers to what you give up when choosing one option over another in personal finance.

A sinking fund is used to set aside money for anticipated large expenses.

The debt-to-equity ratio indicates the proportion of debt to equity, assessing financial leverage.