Housing Counselor Certification (HUD) Practice Exam

Which strategy can help clients better manage their debt?

1. Ignoring smaller debts.

2. Consolidating multiple debts into a single payment.

3. Taking on additional loans.

4. Prioritizing luxury spending.

The correct answer is: Consolidating multiple debts into a single payment.

Consolidating multiple debts into a single payment is an effective strategy for helping clients manage their debt for several reasons. This approach simplifies the repayment process by reducing the number of monthly payments the client has to keep track of. Instead of juggling multiple debts with varying interest rates and payment schedules, clients can focus on one payment, making it easier to budget and plan their finances. Additionally, debt consolidation can often lower the overall interest rate, especially if high-interest debts, such as credit card balances, are combined into a single loan. This can result in lower monthly payments and reduced total interest paid over time, leading to quicker repayment and less financial strain. This strategy also helps clients create a structured repayment plan, making it less likely for them to miss payments, which can lead to further debt and damage to their credit score. By streamlining their debts, clients can gain clarity on their financial situation and regain control over their finances.