Prepare for your Counseling Fundamentals course exam with these practice questions and answers. This guide covers major counseling theories, intervention techniques, and ethical standards.
Q: Process Goals
Answer: Process goals work to ensure that the client experiences counseling as positive, nonjudgmental, and affirming. Process goals seek to establish a trusting client/counselorrelationship in which solutions to problems can be discussed freely. Process goals are concerned with the process of counseling.
Q: Outcome Goals
Answer: Outcome goals are specific goals that clients bring to the table. In the case of financial counseling, outcome goals relate directly to personal financial management. Outcome goals are ultimately the responsibility of the client. Conversely, process goals are the responsibility of the counselor
Q: Human/Business Model
Answer: Is a way of looking at every day interactions as operating on two levels. The business level is where specific objectives are met. The human level is where an individual’s needs are fulfilled. These include the need for attention, courteoustreatment, respect, and acceptance.
Q: What are the 5 Stages of Counseling?
Answer: 1. Rapport Building2. Assessing/Gathering Information3. Goal Setting4. Strategy Implementation5. Follow Up
Q: What are the 5 types of Communication?
Answer: 1. Social Communication2. Persuasive Communication3. Non-verbal Communication4. Expressive communication5. Cognitive communication
Q: What are Objective Measures of Financial Well-Being?
Answer: • A steady and adequate source of income• A positive debt-to-income ratio• Adequate cash flow to meet everyday expenses• A good credit rating• Adequate savings in case of emergency• Adequate savings for retirement• Adequate insurance to protect your health, property, life and family• A spending plan in place and utilized• Identified short and long-term financial goals
Q: What are Subjective Measures of Financial Well-Being?
Answer: The subjective components of financial well-being involve the levels of happinessand satisfaction we derive from the financial resources in our lives.
Q: What are some of the specific concerns clients bring to financial counseling?
Answer: Avoiding bankruptcy• Improving credit• Resolving delinquent debt• Creating a spending plan that works• Exploring spending patterns• Resolving marital conflicts overmoney• Planning for retirement• Paying back student loans• Increasing income• Cutting expenses• Dealing with creditors• Exercising consumer rights
Q: What are the 10 Ways to improve communication?
Answer: 1. Adopt an Accepting Attitude2. Express Yourself Clearly3. Listen for the Total Meaning4. Be Physically Attentive5. Observe Non-verbal Communication6. Share Responsibility for the Communication7. Be Expressive, Be Yourself8. Be Assertive, Not Aggressive9. Avoid “You Should” Messages10. Show Empathy
Q: What are the 6 common barriers to communication?
Answer: 1. Anxiety and Self-Centeredness2. Needless Interruption3. Hidden Agenda4. Overreacting to Emotional Words5. Passing Judgments6. Stereotyping
Q: What is social communication?
Answer: Social Communication is used in getting to know individuals on a superficial level or to simplyacknowledge their presence. Social communication involves many common types ofquestions and responses that are non-threatening. Examples of this casual”small talk” are”How was your weekend?” or “It’s a beautiful day!” Social communication avoids revealinganything personal.
Q: What is persuasive communication?
Answer: Persuasive Communication is used when attempting to influence others. Counselors needto be assertive while at the same time avoiding an aggressive delivery that may makeclients feel pressured. Effective counselors refrain from overtly persuasive language.Instead, they work to affect positive change for the client by objectively exploring allavailable options
Q: What is non-verbal communication?
Answer: Non-verbal Communication occurs through gestures, body language, and facialexpressions. Our eyes, mouth, hands and posture are all conductors of non-verbalcommunication. For this reason, in person contact is highly advantageous. Through face-to-face contact, non-verbal signs provide cues that permit better understanding of clients and their particular needs.
Q: What is expressive communication?
Answer: Expressive communication is used when individuals express attitudes, feelings, values,morals, as well as many other traits that reveal personality. At times, it is difficult orinappropriate to express our innermost feelings, judgments, or needs about sensitiveissues.
Q: What is cognitive communication?
Answer: Cognitive communication is used to transmit content or information. It may involve simplemessages such as confirming an appointment or giving someone your address.Cognitive communication also includes messages that impart complex instructions andknowledge. Human interaction consists of a mixture of the different types ofcommunication. For example, simple social communication like “How are you today?”can reveal information that is cognitive in nature. The client may reveal discouragementby responding, “Same as always – behind the eight ball”. This response then providesinformation which is cognitively processed by the counselor who then adjusts his/herresponse to be more affirming and motivational.
Q: What are the 3 essential conditions necessary for establishing a positive client/counselor relationship?
Answer: Empathy, genuineness, and positive regard
Q: Explain how effective counselors establish trust with their clients.
Answer: •the counselor communicates to the client that he/she has their best interest in mind• the client feels confident that the counselor has the expertise and knowledgenecessary to help with their dilemma
Q: How do counselors convey genuineness?
Answer: • convey openness and spontaneity• avoid hesitancy, inconsistency, and defensiveness• are comfortable expressing their personality with clients
Q: Suggest ways counselors can increase empathy within the counseling relationship.
Answer: • understand how the counseling process affects clients• gain awareness and sensitivity about client cultural differences• gain understanding of themselves among diverse groups
Q: Explain how counselors show positive regard to their client.
Answer: • avoid making judgments about clients• convey acceptance toward clients• focus on the positive aspects of the client
Q: Define active listening.
Answer: Active listening is showing respect and demonstrating interest.
Q: What are the 3 components of active listening?
Answer: 1. What you do 2. what you say 2. what youobserve
Q: How do counselors physically demonstrate interest and caring?
Answer: 1. Maintain an upright, relaxed posture2. Establish eye contact.3. Use appropriate facial expressions.4. Provide non-verbal feedback.
Q: What do counselors observe about client messages?
Answer: What they are saying and how they are saying it
Q: List the 4 specific techniques used during reflective listening.
Answer: 1. Clarifying2. Paraphrasing3. Summarizing4. Reflecting Feelings
Q: How does non-reflective listening help client/counselor communication?
Answer: Non-Reflective Listening consists of verbal affirmations that encourage the client to continue communicating. ” Non-reflective listening is particularly useful when a client appears hesitant during communication.
Q: Reflective Listening
Answer: Reflective listening serves to assure the client that you receive and understand what the client is saying. With reflective listening, counselors reflect back the content as well as the feelings of client messages.
Q: Non-reflective Listening
Answer: Non-reflective listening serves to encourage client communication. Is the simplest form of listening. This type of listening involves attentive silence with minimal vocal response. Appropriate nodding, verbal affirmation, and facial expressions encourage the client to continue talking. When possible, counselors should use encouraging responses that are nonjudgmental in nature. Examples of these short responses include, “Please continue”, “All right”, and “Yes.”
Q: List the five things good interviewers do.
Answer: 1. They ask short, direct questions.2. They ask only one question at a time.3. They ask questions that do not need to be explained.4. After they ask a question, they wait for the client to answer.5. They do not answer their own questions
Q: Give three examples of closed-ended questions.
Answer: Did you sign a lease?Who is your employer?Can I call tomorrow?
Q: Give three examples of open-ended questions.
Answer: How have you dealt with this before?How can I assist you?What do you think about this solution?
Q: Open-Ended Questions
Answer: Open-Ended Questions encourage clients to explore their thoughts and feelings. Often theyinvolve getting clients to analyze their situation or evaluate options or courses of action tobe taken. Open-ended questions usually require an answer longer than just a word or two.
Q: Closed-Ended Questions
Answer: Closed-Ended Questions on the other hand, are used to get factual information from theclient. They can often be answered with a “yes,” a “no,” or one or two words
Q: Describe what is “client-centered counseling”
Answer: It is client-centered. The client is situated squarely in the center of the helping process.Clients communicate their particular financial scenarios, provide critical information, offerresources, establish objectives, and ultimately take the actions necessary to improvetheir financial situation. Ultimately, it is the client who pays down his/her debt and nobodyelse. Counselors act to facilitate and support client-directed outcomes.
Q: List the steps in the natural problem-solving process.
Answer: Step 1: Awareness of the problem (financial)Step 2: Problem creates sense of urgency. -. For example, debt creates annoyance or interference in the client’spersonal and professional life.Step 3: The search begins.- Client begins to search for a solution. This may be the point at which the client initiates counseling. However, at this stage, the client is merely exploring the options.Step 4: Decisions, decisions. -The client weighs the consequences of the different options explored. For example, the client may weigh the option of bankruptcy against what this would do to his or her long term credit rating.Step 5: What if I did nothing? Now the client seriously considers his/her options againstthe cost of simply ignoring the problem. This is often hard to do in the case of credit debtsince the amount owed continues to grow by use and/or interest fees.Step 6: I’ve made a decision! An intellectual decision is made to follow a particular courseof action. “I’m going to sell some of my assets,” or “I’m going to get a home-equity loan.”However, a decision made only by the head is insufficient to cause action. In reality, theclient does not sell his powerboat. The client does not even apply for a home-equity loan.Step 7: “C” is for commitment. Then a decision involving the heart is made. With theclient’s head and heart involved, the commitment needed to solve the problem is in place.
Q: Outline the problem-solving stages used by counselors to facilitate problem solving.
Answer: 1. Identifying the current situation – where is the client now?2. Setting goals – where does the client want to go?3. Working to get there – how will the client reach stated goals?
Q: How do you calculate networth?
Answer: Assets – Liabilities = Net Worth; Net Worth is the difference between the total amount of your assets and the total amount of your liabilities.
Q: How do you calculate debt-to-income ratio?
Answer: To calculate debt-to-income ratio, add up all monthly payments and divide by the monthlynet income. If you include mortgage or rent, a healthy debt-to-income ratio is 36% or less.If you do not include mortgage or rent, the ratio should be kept under 20%.
Q: Problem-Management/Opportunity-Development Mode
Answer: Compliments financial counseling specifically by focusing on the two inter-related actions of managing problems (decreasing expenses) and developing opportunities (increasing income).
Q: Describe the Three A’s of money relationships.
Answer: Money relationships can be seen as falling into three major categories: money andachievement, money and approval, and money and agitation — the Three A’s.
Q: Describe how spending percentage guidelines can be utilized during budget analysis.
Answer: A spending percentage guideline lets counselors compare client spending with national averages.
Q: Liquid Assets
Answer: Is cash on hand, money in the bank, or any other asset that can be converted into cash with a minimum amount of inconvenience and with no loss in market value.
Q: Fixed Expenses
Answer: Are expenses that do not vary from month to month such as mortgage and car payments.
Q: Variable Expenses
Answer: Are those that change from month to month such as utilities, groceries, and clothing.
Q: Discretionary Expenses
Answer: Are those the client has complete control over such as spending for gifts, recreation, and entertainment.
Q: What are characteristics of the Fanatical Shopper?
Answer: 1. You shop for weeks for the best price.2. Others consider your bargain hunting to be excessive.3. You neglect quality in an effort to save money
Q: What are characteristics of the Impulsive Buyer?
Answer: 1. You make unplanned, impulsive purchases often.2. You have little willpower when considering a purchase.3. You buy items you don’t need because they’re on sale
Q: What are characteristics of the Passive Buyer?
Answer: 1. You put off making necessary purchases.2. You are easily persuaded by salespeople.3. You blame the product or salesperson when the purchase is unsatisfactory.4. You rarely ask questions or feel insecure when talking to salespeople.
Q: What are characteristics of the Ulterior Motive Spender?
Answer: 1. You shop to escape the pressures of life.2. You spend money to get back at your spouse or significant other.3. Buying certain items makes you feel superior.4. You buy gifts out of guilt or to gain approval from others
Q: What are characteristics of the Esteem Spender?
Answer: 1. You prefer to shop in prestigious stores.2. You avoid discount chains like Wal-Mart or K-Mart.3. You buy items because others have them.4. You buy items to impress others.
Q: What are characteristics of the Special Interest Spender?
Answer: 1. You have a collection, hobby, or activity others might consider excessive.(If you did not check this item, skip this part.)2. Others consider your \spending on it to be excessive.3. The collection, hobby, or activity is potentially harmful to your health or finances.4. The collection, hobby, or activity is the cause of family conflicts.
Q: What are characteristics of the Hot Potato Spender?
Answer: 1. You worry about important purchases.2. You put off important purchases for weeks and then make a sudden decision to “get it over with”.3. When faced with complex financial decisions, you tend to get overwhelmed and make quick choices rather than thinking through all the variables.
Q: Money and Achievement (Relationship to Money)
Answer: In this category, money is strongly related to feelings of achievement. People who have this relationship with money work hard and wantsomething tangible to show for it. A new sports car is the perfect pat on the back for a jobwell done. A pay raise means it’s time for a bigger house.
Q: Money and Approval (Relationship to Money)
Answer: This group sets out to please others. They want everybody to like them. They want to be accepted into the group; the “keeping up with the Joneses” set. They also tend to overspend on social occasions and gifts
Q: Money and Agitation (Relationship to Money)
Answer: Spending is often fueled by our day-to-day emotions. People in this category purchase items to alleviate stress, feel better about themselves or out of spite. For these individuals, money is the drug of choice.
Q: What is financial success?
Answer: Financial success is obtaining maximum benefits from existing financial resources
Q: List the seven different phases of life-cycle planning.
Answer: 1. career planning2. savings planning3. retirement planning4. debt planning5. insurance planning6. investment planning7. estate planning.
Q: How can Maslow’s Heirarchy of Needs be used to gain insight into a client’s spending habits?
Answer: Tells us about the motivation behind client’s consumption
Q: What are the three steps to decision making?
Answer: 1. Information gathering. Gathering information is the basis for deciding what theproblem is, what needs work, what could be better.2. Processing the information. Once the information is gathered, the client must analyze itand draw conclusions from it.3. Choice and execution. This is the point of commitment when the client decides to takeaction.
Q: What are the key aspects of goal setting as described by Locke and Latham?
Answer: A series of experiments and studies conducted by Gary Locke and Edward Latham have lead researchers to believe that there are fundamental aspects of goal setting that often enable people to achieve their desired outcome. These includesetting short and long-term goals, making the goal-setting process participative, and usingfeedback.
Q: What are the three components of a good outcome goal?
Answer: 1. It’s specific2.It’s measurable3. It’s viable
Q: Discuss Bandura’s idea about self-efficacy. What two conditions does he say affect anindividual’s willingness to take action?
Answer: According to Bandura’s Theory of Self-efficacy, in order for an individual to takeaction, he or she must:o believe that the action will result in a desired outcome ando believe that he or she possesses the ability to do what it takes tosee the action through to completion.
Q: Discuss the differences between an individual with an internal locus of control and individual with an external locus of control.
Answer: Those with an internal locus of control believe that the circumstances and eventssurrounding them depend on their own ability or behavior. Conversely, those with an externallocus of control see the conditions around them as a direct result of luck or chance.Possessing an internal locus of control empowers the individual whereas external locus ofcontrol subordinates the individual to outside forces which act irrespective of whatever theindividual might do.
Q: List the four primary benefits for establishing and maintaining a spending plan.
Answer: o It helps to identify overspending.o It promotes honest interpersonal communication and accountability.o It increases motivation.o It tracks your success
Q: What are the four ways to economize?
Answer: 1. substituting2. conserving3. cooperating4. utilizing community resources.
Q: Reframing
Answer: Is a solution-focused technique whereby a negative situation is seen in a positivelight. Self-efficacy is the belief that you have what it takes to accomplish a particular plan ofaction. Spending personality refers to how a consumer behaves when making purchases.
Q: What is the Solution-Focused Approach to counseling?
Answer: -Solution-Focused Counseling is goal-oriented. Clients are encouraged to identifytheir short and long-term goals and to identify the obstacles that are keeping them fromreaching those goals. It is now a matter of removing the obstacles. This can be a highlymotivational exercise.- The Solution-Focused Approach highlights client strengths rather than weaknesses.Any real, long-term solution to a client’s problem must come from the client. Thus, the counseling session becomes positive and self-affirming for the client.-Solution-Focused Counseling focuses on the future. Little time is spent on the past,the mistakes, and the patterns of self-deception. The present moment -the counselingsession – is used as a springboard to discover and actualize a positive future.
Q: How can you overcome self-defeating behaviors?
Answer: -Use rational coping and self-statements-Take the bad with the good.-Use the power of distraction
Q: Substituting (Economizing)
Answer: Substituting products or services for less costly alternatives. This does not necessarilymean giving up quality. For example, substituting dry cleaning services for do-it-yourselfdry cleaning does not mean you will be wearing dirty clothes.
Q: Conserving (Economizing)
Answer: Conserving resources to get the most out of them, avoiding waste, and using whatyou have efficiently. Part of conserving is maintaining the things you own and keepingthem in good working order. This includes your possessions, your skills, and yourhealth.
Q: Cooperating (Economizing)
Answer: Cooperating with others to reduce expenses. Common examples include carpooling andsharing baby-sitting, food and housing costs.
Q: Utilizing community resources (Economizing)
Answer: Utilizing community resources. Communities everywhere offer a wealth of freeservices and recreation like parks, museums, and libraries. A picnic lunch at a publicpark often provides a more spectacular view than most restaurants. This category ofeconomizing also includes all the various assistance programs designed to help thosewho need it. An excellent place to start is www.mymoney.gov
Q: List some of the reasons why credit is important in today’s society
Answer: Secured credit is any loan backed by collateral. Mortgages and auto loans are examples of secured credit. In the event that the consumer defaults on the loan, the lender can seize theproperty that was pledged as collateral.Unsecured credit is not backed by collateral so the risk is much higher for the lender. If the consumer fails to repay, the lender must win a court judgment in order to recover any unpaid debt. It is granted solely on the consumer’s creditworthiness which includes credit history and current financial picture. Credit cards are the most prevalent examples ofunsecured credit.
Q: Explain the difference between secured and unsecured credit.
Answer: 1. Finance charges are based on the lender’s annual percentage rate (APR) which is the rate of interest charged on an annual basis
Q: List three ways lenders calculate finance charges.
Answer: -Transaction Fees, Over-The Limit Fees, Late Fees, Pay-Off Fees, Annual Fees and Charges for Cash Advances
Q: What are some “nuisance fees” that credit-card lenders may add into monthly statements?
Answer: This act requires that all credit card issuers disclose:• The Annual Percentage Rate (APR)• The monthly finance charge (APR divided by 12)• Whether the rate is fixed or variable – if it is variable, the lender mustdisclosehow it is calculated• The interest rate applied to cash advances• The duration of the grace period -the time in which a cardholder can paythebalance without incurring interest• By what method finance charges are calculated• Additional fees such as late payment fees, over-the-limit fees, or cash advancefees
Q: Explain what the Truth in Lending Act requires lenders to do.
Answer: 1. Limit the number of credit cards you maintain..2. Do NOT maintain cards with the following features:• High interest rates. If the only card a client plans to keep active has a highinterest rate but the payments are up-to-date, he/she may request an interest ratereduction.• Early interest posting dates. Purchases made on these cards are posted from thetime of the transaction. This translates into higher finance charges.3. Avoid credit cards with complicated billing policies.4. Minimum payments don’t add up. Many consumers get locked into the idea that ifthey can make their minimum monthly payments, their credit debt will remainmanageable. This simply is not true. If the consumer is making new purchases everymonth and only making the minimum payments, the debt will never go down – it willcontinue to grow! This, in turn, increases the finance charges which accrue based onthe increasing balance. For this reason, lenders love consumers who make minimummonthly payments.5. Limit the credit limit.
Q: What are some ways to prevent credit-card debt?
Answer: This most common type of grace period uses the average daily balance, including new purchases for applying interest. In this case, you pay interest onall new purchases unless you have paid your previous month’s balance in full.
Q: Typical Grace Period.
Answer: Few cards have this most desirable feature. This type of grace period comes with cards that use the average daily balance excluding new purchases.Here, interest is not applied to new purchases whether or not your previous balance hasbeen paid off.
Q: Full Grace Period.
Answer: In this least desirable scenario, the average daily balance including new purchases is applied whether or not you have paid off your previous balance. You still pay interest.
Q: No Grace Period.
Answer: ASAP-Ability to pay back the amount of the loan granted.-Stability is also considered as a factor of creditworthiness. Stability is a reflection of character. The idea is that if a person has worked and lived at the same place for at least two years, he/she is likely to make regular payments on credit bills because he/she shows regularity in maintaining the same job and the same address.-Assets -They would rather extend credit to consumers who have things -houses, cars, boats, antiques and jewelry -things that can, if necessary, be liquidated to pay back outstanding debts. Lenders figure, with all the hard penalties they can incur to prompt payments, consumers with assets can always get cash under pressure.-Performance -what you do with your credit
Q: What are the major components that make up a consumer’s creditworthiness?
Answer: • Low interest rate• No annual fee• Long grace period• Low penalty fees• Adjusted balance computation method
Q: List some of the desirable features in credit card offers.
Answer: • High annual fees that can increase over time• Penalty fees for not using your card regularly• Low interest rates that quickly increase• Increased finance charges due to late payments• Increased finance charges due to exceeding your credit limit
Q: What features should be avoided in credit card offers?
Answer: Under The Equal Credit Opportunity Act, creditors must inform the consumer within 30 days whether an application for credit has been approved, rejected, or found incomplete. If credit is denied, creditors must provide the consumer with the specific reason or reasons for the rejection.
Q: Explain the purpose of the Equal Credit Opportunity Act.
Answer: The minimum payment on a credit card is calculated as a percentage of the current balance. The minimum payment will decrease as the balance is paid. However, through the magic of compound interest, a higher balance will remain for a longer time.
Q: Explain why paying the minimum balance each month ultimately increases the cost of credit.
Answer: Obtaining credit -Shop for the best deals. There are some excellent sources on-line to begin searching for the best card for you. Watch out for variable interest rates or introductory rates that can turn monstrous overnight.• Making purchases – It is never a good idea to use credit to pay for everyday expenses like groceries. Also, try not to use credit to pay for unexpected expenses such as car or home repairs. Your spending plan should provide funds for these types of emergencies.• Cash Advances – Most cards allow for cash advances. Don’t do it!• Monitor your account – Many people fail miserably at the credit game simply because they are not paying attention to what is going on with their accounts. Read over the billing statement carefully the same day it arrives in the mail. If there are unrecognized chargesor fees, call the customer service number. Watch for any unexpected changes in rates, terms, or conditions.• Paying bills – It is best to pay the balance in full each month to avoid any finance charges. However, if this is not realistic, try to pay more than the minimum payment. A good idea is to arrive at a fixed payment – $50, $75, or whatever is affordable – until the balance is either paid off or, at least, manageable.• Check the credit report once a year – Make sure to get a copy of your report from each ofthe three credit reporting agencies – TransUnion, Equifax, and Experian. Dispute any errors
Q: Describe some of the ways to use credit wisely.
Answer: -Unfamiliar charges- Clerical errors- Fraud
Q: List two of the most common types of billing errors.
Answer: 1. Notify the card issuer by telephone.2. Follow up by notifying the card issuer in writing.3. Get a copy of your credit report and make sure that it accurately records thecancellation.4. Repeat steps 1 through 3 if necessary.
Q: Describe the steps necessary for cancelling a credit card.
Answer: Consumers have the right to dispute billing errors under The Fair Credit Billing Act.
Q: What does the Fair Credit Billing Act give consumers the right to do?
Answer: -According to the Fair Credit Reporting Act, the credit bureau is required to resolve the problem in a reasonable amount of time — generally 30 days. -The Fair Credit Reporting Act requires that negative items on a credit report including Chapter 13 Bankruptcy be erased seven years from the date initiated. Chapter 7 Bankruptcy must be erased after ten years.
Q: Explain what the Fair Credit Reporting Act requires of credit-reporting agencies.
Answer: • Your full name• Your date of birth• A photocopy of your social security card• A photocopy of your driver’s license• Your current address• Your former address if you lived there within the last 5 years• A copy of letter denying credit, employment, or insurance (to receive free copy)
Q: What should be included in a letter requesting a credit report?
Answer: Experian, Equifax and TransUnion
Q: What are the three credit-reporting agencies?
Answer: • Personal identification information• Account history information• Public record information• Inquiries
Q: What are the four types of information that go into a credit report?
Answer: Fair, Isaac and Company (developers of the credit score software)
Q: What does FICO stand for?
Answer: • payment history• amounts owed• length of credit history• new credit• types of credit in use
Q: What items does a FICO score consider?
Answer: Tips for raising your score include: pay bills on time, keep credit card balances low, andnegotiate with creditors if you are having difficulty staying current with payments.
Q: List some ways consumers can raise their FICO score.
Answer: • U.S. law prohibits scoring based on race, color, religion, national origin, or marital status. •Salary, occupation, title, employer, date employed, or employment history. Lenders mayconsider this information, however, as may other types of scores.• Place of residence.• Any interest rate being charged on a particular credit card or other account.• Any items reported as child/family support obligations or rental agreements.• Certain types of inquiries (requests for a credit report). The score does not count”consumer disclosure” inquiries — requests the consumer has made for his/her creditreport in order to check it. It also does not count “promotional inquiries” — requests madeby lenders in order to make you a “pre-approved” credit offer or “administrativeinquiries” — requests made by lenders to review an account. Requests that are markedas coming from employers are not counted either.• Any information not found in the credit report.• Any information that is not proven to be predictive of future credit performance.
Q: What are some types of information that are NOT factored into a FICO score?
Answer: 1. Easy access to credit. Credit card companies target nearly every sector of society with savvy credit offers that give the illusion of getting something for nothing. As a result, everyone seems to be carrying plastic – some with outrageous finance charges.2. Easy access to money. ATMs and debit cards are everywhere you go and everywhere you spend money. If you know your PIN number, you can effortlessly withdraw oodles of dollars from your bank account. And with cards – you always spend more.3. Consumer culture. Americans are increasingly becoming media-driven. Instead of comparing themselves with “The Joneses”, millions are tuning in to “Desperate Housewives” and other television shows as their reference points of success and style. And those in the media are quite a bit harder to keep up with!
Q: Identify three of the most prevalent reasons for consumer debt.
Answer: • Compulsive spending is the attempt to alleviate a sense of emptiness by binge shopping and frivolous spending.• Co-dependent spending tries to create dependency in others by showering them with perceived necessities.• Narcissistic spending is an attempt to overcome feelings of inner inferiority by spending to look good. This could include designer clothing, hair and skin treatments, and products that signify status like expensive watches and jewelry.• Revenge spending usually occurs in relationships where one person exacts punishment on another by spending their money. They literally get them “in the pocket”.
Q: Name at least two types of over-spenders.
Answer: Exploits borrowers, especially vulnerable groups such as the elderly, minorities, and people with poor credit histories by charging high interest rates and excessive fees. Many of these types of lenders use deceptive sales practices to trick people into getting loans they cannot afford to repay. The results can lead to foreclosure, eviction, and homelessness.
Q: Define predatory lending.
Answer: 1. The imprudent. These are consumers who have no money put away for a rainy day.Generally, they live one day at a time without any financial goals. Setbacks such asinterruption of income, medical emergency, health problems, or marital breakup can knockdown their lifestyle, assets, and credit as if they were bowling pins.2. The naive. Many consumers today do not know the consequences of unpaid debt. Somethink that if they just ignore their debt, it will eventually go away. What usually goes away,however, is any chance for financial freedom.3. Fortune’s victim. Yes, some people in debt have done everything right. They planned,they saved, and they practiced responsible spending and lending. And yet, they sufferfinancial collapse due to some catastrophic life event. It’s not fair, but indebtedness canand often does happen to conscientious, money-savvy people.4. The reckless spender. These are people who, for whatever emotional reason, spendmore than they have. They may impulse buy, cave in to salespeople, spend money onfriends due to a “need” to be liked, or have deep feelings of entitlement -the “I deserveit” syndrome.5. The unethical. These are the “fraudsters” who borrow on credit with absolutely nointention of paying back their loans.6. The impoverished. Some high-risk consumers are issued credit cards by accident.Once they have it, they use it to make necessary purchases like food and clothing – nowwith the added cost of finance charges.
Q: Describe how the condition of indebtedness can affect different clients.
Answer: Credit Grantors, Collection Agencies and Attorney’s
Q: Identity the different types of collectors.
Answer: Helps to protect consumers from the harassment of debt collectors.
Q: What is the purpose of The Fair Debt Collection Practices Act?
Answer: 1. Revoke credit privileges2. Damage credit rating.3. Sue to collect the debt
Q: List three things collectors can do to get consumers to pay delinquent debts.
Answer: Foreclosure can be a long, complex process requiring 6 – 18 months to completion. Typically, if you have missed one or two mortgagepayments, the lender will contact you by letter and telephone asking for the outstanding balance plus any late fees. These can be 5% – 6% of the monthly payment. After 60 – 90 days, if you do not pay or make contact with the lender, you will receive a formal notice in the mail. This is called the Notice of Default. It is the first step in the foreclosure process. At this point, you have 90 days to “cure” the debt by making up all your missed payments plus late charges. This will re-instate your loan and stop a foreclosure from proceeding. If you still do not pay or contact the lender in the allotted amount of time, another formal notice will arrive in the mail — the Notice of Acceleration. Literally, what you owe the lender is accelerated so that the full amount of the mortgage is due immediately to avoid a foreclosuresale.
Q: Briefly outline the process of foreclosure.
Answer: -Common mortgage workouts include curing the debt and recasting past-due installments.-Recast – If the homeowner is able to make the monthly mortgage payments, but cannot make up any past due installments, the arrearscan be deferred or “recast” so that it is no longer a present obligation. It is recast as payment due at the end of the loan term. -A common workout is an arrangement to “cure” a default by adding a percentage of the outstanding debt (traditionally known as the “arrears”) to the regular monthly payments until the debt becomes current.
Q: Provide three examples of common mortgage workout agreements.
Answer: A default occurs as soon as one payment of any installment loan is missed. The lender then has the right to seize whatever property was guaranteed as collateral. In the case of automobile loans, the lender can put a lien on the car and sell it to recoup some of the money owed.
Q: Explain what a deficiency balance is with regards to automobile repossession.
Answer: It is not worth it. The resale value on bedroom furniture or a piece ofheirloom jewelry may be negligible, but the possibility of taking an item of sentimental value may very well convince the consumer to arrange payment. Threats to seize heirloom jewelry or furniture are often effective tactics creditors use to collect debts
Q: Explain why threats by creditors to seize personal property are usually never carried out.
Answer: Successful lawsuits filed by creditors can result in the following:Judgment Liens -When a lien is placed on a piece of property, whether it be a home, vehicle, furniture or electronic equipment, the title on that property is unclear. Until the title is cleared up (by settling the debt) the owner is prohibited from selling or re-financing the property involved in the lien. Once the judgment lien is won, the lender has the right to examine the assets. Then the lender must make a formal request to the court or sheriff to seize or sell the property. Certain possessions are exempt from seizure. These include household items with little resale value. Your shirt cannot literally be taken off your back! Other items are protected from seizure depending on individual state laws sometimes include homes.Wage Garnishment and Bank Account Seizures – Up to 25% of a person’s take-home pay can be intercepted and seized. More can be taken if the debt involves unpaid child support. In most cases, a consumer has the right to a hearing before wages are garnished.If a court order is won, the order for garnishment is relayed either directly to the person’s employer or to his/her bank. Laws vary widely from state to state regarding garnishments. In some states, it is quite common while in others it is virtually impossible to carry out.Attending hearing proceedings is imperative and obtaining legal counsel is strongly advised.
Q: List possible actions that may be taken by a creditor who has won a court judgment against a debtor.
Answer: Consumer options for resolving debt include credit counseling, debt settlement, and debt consolidation loans.
Q: Identify three options available to the consumer for resolving debt
Answer: • Credit Counseling – Credit counseling is a fast growing industry today with thousands of debt management agencies nationwide. Credit counselors enroll clients in debt management plans or DMPs that involve one monthly payment. That payment is handled by the agency and dispersed to the various creditors. They receive what is known as “fair share” from the creditors which is a percentage of the collected payment. To qualify for credit counseling, consumers must have a steady source of income in order to make regular monthly payments. They also must be committed to resolving their outstanding debt as a DMP may take up to four years to complete depending on the amount of debt.• Debt Settlement -Debt settlement (sometimes referred to as debt negotiation) offers consumers the option to resolve their debts with a lump sum payment. The debtor must come up with the agreed upon amount in order to pay off the debt all at once. This could require a period of time in which to save the necessary funds. In some cases, a client in debt settlement pays into an account. As cash accumulates, the debt negotiator works out a reduced settlement amount with the creditors. This alternative holds promise for consumers with sizable debt issues who wish to avoid a declaration of bankruptcy. Typically, clients in debt settlement must endure a period of increased debt collection activity while they cease making regular payments to their creditors. However, for many debtors, this is a viable alternative to a Chapter 7 Bankruptcy.
Q: What is the difference between credit counseling and debt settlement?
Answer: First of all, dealing with debt is not pleasant. It requires long periods of time on the telephone talking to creditors who may or may not wish to negotiate with you. It takes a certain level of tenacity that many people just do not possess. Also, going it alone can create a lot of aggravation and stress.Debt management and debt settlement agencies are often in a much better position to negotiate with creditors. They have developed working relationships with lenders and credit- card issuers. Also, because of the large number of accounts that organizations handle, they have the opportunity to receive volume discounts. Finally, agencies know about the latest industry trends and special offers for resolving delinquent accounts.
Q: Explain why consumers might benefit from getting outside help with their debt issues.
Answer: -Chapter 7 bankruptcy wipes out any debt filed under it.-Chapter 13 bankruptcy reorganizes debt into a monthly payment plan and offers certain court protections from creditor actions.
Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
Answer: Child support obligations, tax debts, and student loans. Debts the court declares non-dischargeable due to creditor objections. This could be debts incurred by fraud or malicious acts.
Q: List debts that cannot be discharged through a Chapter 7 bankruptcy.
Answer: 1. Limits Chapter 7 Eligibility. Under BAPCPA, abuse is presumed if a debtor’s income is above the state’s median income for a family of the same size. The debtor, in this case, must prove there are no funds available to pay back the creditors. A means test is administered to determine whether or not a debtor can afford to pay at least $100 a month to the creditors. However, the means test does not use the debtor’s actual income and expenses to make its calculations. The debtor’s income is expressed as the average income of the last six months regardless of whether or not the debtor has experienced a job loss. Also, expenses are based on IRS rules that state what”reasonable” expenses are. Critics of the new law include consumer advocates and women’s groups who see an essential financial safety net removed. If credit-card debt cannot be wiped out, that’sless money that can go toward essential expenses such as child support. On the other hand, proponents of the law see the means test as the primary tool for reducing the epidemic numbers of bankruptcy filings. Filers who do not pass the means test must file either a Chapter 13 and enter a five year repayment plan or slip further into debt.2. Limits to Chapter 13. While many debtors who are ineligible for a Chapter 7 will presumably enter a Chapter 13 repayment plan, several changes in this type of bankruptcy make it less powerful.a) Many debts that were dischargeable in a “superdischarge” can no longer be discharged. These include debts resulting from theft, fraud, certain back taxes, fines and damages.b) An auto lien can no longer be “stripped” whereby the debtor pays only the secured portion of the debt if the vehicle was purchased within 910 days of the filing.c) All repayment plans must last five years. In the past, some plans lasted only three years.3. Mandatory credit counseling within 180 days prior to filing bankruptcy.4. Limits on the automatic stay. The automatic stay no longer stops or postpones evictions, actions against a driver’s license or professional license, lawsuits to establish paternity, child custody, or child support, or divorce proceedings.5. Increased time between filings. A Chapter 7 debtor cannot receive a discharge if a prior discharge was received within eight years as opposed to six years of the new filing.6. Mandatory debtor education. A debtor can be denied a discharge if the debtor does not complete a course in personal financial management that is approved by the U.S. Trustee.7. Limits to the discharge. Debts owed to a single creditor totaling more the $500 in luxury goods purchased within 90 days of filing are considered non-dischargeable. Also, nondischargeable are cash advances totaling $750 within 70 days.8. Increased paperwork. A case can be dismissed if the debtor fails to submit the following documents:• List of creditors• Schedules of assets and liabilities, income and expenses• Certificate of credit counseling• Evidence of payment from employers received 60 days prior to filing• Statement of monthly net income and any anticipated increase in income or expenses after filing• Tax returns or transcripts for the most recent tax year• Tax returns filed during the case including tax returns for prior years that had not been filed when the case began• A photo ID9. Required verification by the attorney. Attorney fees are expected to rise substantially due to increased legal responsibility. Attorneys must verify and attest to the accuracy and completeness of a filer’s petition. Numerous other provisions in the law address homestead exemptions, domestic support obligations, taxes, and student loans. The above list in no way should be consulted as a legal resource. Many provisions are extremely detailed such as the limits imposed on the automatic stay and how the means test is administered and interpreted.
Q: List three or four provisions in the new bankruptcy law.
Answer: 1. an analysis of the current financial situation2. a discussion of the factors that caused the current situation3. a discussion of all the options for resolving the debt4. and guidance in developing a plan of action.
Q: Describe the components of pre-bankruptcy counseling.
Answer: -Consumer workout, credit counseling, debt management plan, debt consolidation and debt settlement
Q: What are the alternatives to bankruptcy?
Answer: Consumers experiencing debilitating debt have two primary options: resolving thedebt or file bankruptcy.
Q: What are the 2 primary options for consumers experiencing debilitating debt?
Answer: A debtor can file for a Chapter 7 eight years from the date of the first filing.
Q: What is the waiting period for those who have filed previously to file again?
Answer: If you filed for a Chapter 7 bankruptcy within the last eight years, you are still eligible for a Chapter 13.
Q: When can you file chapter 13 after filing chapter 7?
Answer: -Protect your cosigner-Protect your nonexempt property-You have already filed chapter 7 within 8 years
Q: Reasons to file chapter 13?
Answer: Occur when those who are having trouble paying their bills contact their creditors directly and attempt to negotiate an agreed upon arrangement for repayment
Q: Consumer workouts
Answer: Offers a debt management option where, for the most part, not-for profit agencies negotiate with creditors on behalf of their clients and enroll clients in payment plans that involve one monthly payment.
Q: Credit counseling
Answer: Works to settle debts with a lump sum payment that is negotiated and agreed upon with the creditors.