CFP® Terms > B.10 Financing Strategies and Debt Management > Flashcards

B.10 Financing Strategies and Debt Management Flashcards

Learners will be able to identify and explain various financing strategies and debt management techniques to optimize financial performance and sustainability. (39 cards)

Study These Flashcards
1
Q

The ratio of monthly consumer debt payments to monthly net (after-tax) income.

A

Consumer Debt Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The ratio of monthly housing costs (including principal, interest, taxes, and insurance) to monthly gross income.

A

Housing Cost Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The ratio of total monthly debt payments to monthly gross income.

A

Total Debt Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

A liquidity ratio that measures a person’s ability to pay short-term obligations, calculated as current assets divided by current liabilities.

A

Current Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The ratio of net investment assets to net worth, indicating the proportion of net worth invested.

A

Net Investment Assets to Net Worth Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Cash or cash equivalents set aside to cover unexpected expenses or financial emergencies.

A

Emergency Fund

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

A loan repaid over time with a set number of scheduled payments, including interest.

A

Installment Loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Short-term financing repaid in one lump sum, often used between two transactions.

A

Single Payment (Bridge) Loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

A debt reduction strategy where the smallest debts are paid off first, regardless of interest rate, to build motivation.

A

Debt Snowball Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

A strategy that focuses on paying off debts with the highest interest rates first to minimize total interest paid.

A

Debt Avalanche Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

A type of credit score created by the Fair Isaac Corporation, ranging from 300 to 850, used by lenders to assess credit risk.

A

FICO Credit Score

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

A mortgage with low initial payments that increase over time, designed for borrowers with rising income expectations.

A

Graduated Payment Mortgage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

The mix of debt and equity financing used by a company to fund its operations and growth.

A

Capital Structure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The use of borrowed funds to increase the potential return on investment.

A

Leverage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

The proportion of debt and equity that minimizes a firm’s cost of capital and maximizes its value.

A

Optimal Capital Structure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

A theory suggesting that firms balance the tax benefits of debt financing with the costs of potential financial distress to determine their optimal capital structure.

Study These Flashcards
A

Trade-Off Theory

17
Q

A theory stating that firms prefer to finance new projects using internal funds first, then debt, and issue equity as a last resort.

Study These Flashcards
A

Pecking Order Theory

18
Q

Replacing an existing debt obligation with a new one under different terms, often to reduce interest rates or extend the repayment period.

Study These Flashcards
A

Debt Refinancing

19
Q

The order of repayment in the event of a company’s liquidation, with senior debt being paid before subordinated debt and equity.

Study These Flashcards
A

Seniority in Capital Structure

20
Q

The process of gradually repaying a debt over time in equal payments, with each payment covering both principal and interest.

21
Q

A large, lump-sum payment due at the end of a loan term, following smaller periodic payments during the term.

Study These Flashcards
A

Balloon Payment

22
Q

A type of credit that allows the borrower to use or withdraw funds up to a pre-approved limit repeatedly as long as they make minimum payments.

Study These Flashcards
A

Revolving Credit

23
Q

Debt backed by collateral, which the lender can seize if the borrower defaults.

24
Q

Debt not backed by collateral, relying solely on the borrower’s creditworthiness.

Study These Flashcards
A

Unsecured Debt

25
**Combining multiple debts** into a **single loan** or payment, often at a **lower interest rate**.
Debt Consolidation
26
When **loan payments are insufficient to cover interest costs**, causing the **unpaid interest** to be added to the **loan principal**.
Negative Amortization
27
The percentage of **available credit** a borrower is using, calculated as **total credit balances divided by total credit limits**.
Credit Utilization Ratio
28
**Loans** offered to borrowers with **poor creditworthiness**, typically at **higher interest rates** to offset the increased risk.
Subprime Lending
29
The legal process by which a **lender repossesses a property** when the **borrower fails to make mortgage payments**.
Foreclosure
30
A **temporary postponement of loan payments**, often granted for student loans during financial hardship.
Deferment
31
A **temporary reduction or suspension of loan payments** granted by the lender due to financial hardship.
Forbearance
32
A **legal process** in which individuals or businesses **unable to repay debts** can seek relief through court-approved **debt restructuring** or discharge.
Bankruptcy
33
A **short-term, high-interest loan** typically due on the borrower's **next payday**.
Payday Loan
34
The ratio of a **loan amount to the appraised value of the collateral**, used to assess risk.
Loan-to-Value Ratio
35
The **cancellation or reduction** of a borrower's obligation to **repay a debt**.
Debt Forgiveness
36
A **refinancing option** that allows borrowers to take out a **new mortgage for more than they owe**, receiving the difference in **cash**.
Cash-Out Refinance
37
A r**evolving line of credit** secured by the borrower's **home equity**.
Home Equity Line of Credit
38
The process of **negotiating new terms** with creditors to improve a borrower's ability to **repay debts**.
Debt Restructuring
39
**Failure** to meet the **legal obligations of a loan**, such as **missing payments**.
Default
CFP® Terms
flashcards
Decks in class (70)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions