Debt Repayment

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Determine how each of these factors may impact the ability to repay debt:
    • Net income
    • Rate of savings
    • Amount of savings
    • Debt levels
    • Interest rate on debt
    • Cash flow limitations / alternatives
    • Unforeseen events (i.e., disability, death of spouse)
    • Personal attitudes / preferences
    • Procrastination
    • Business failure / loss of employment
    • Relationship breakdown
    • Support of children / parents / family
    • Lack of knowledge / advice
    • Personal attitudes / choices
  • Identify debt repayment strategies, such as:
    • Prioritize paying down debt with the highest interest rate
    • Prioritize paying down debt with the smallest balance
    • Consolidate debt balances
    • Prioritize paying down debt with specific covenant or purpose
  • Calculate the amount of dollar assets required to pay down or retire debt.  
  • Calculate the amount of cash flow required to pay down or retire debt. 
  • Explain the impact on debt projections when assumptions differ from reality. 
  • Determine how each of these factors may impact the choice of debt repayment strategy:
    • Impact on cash flow
    • Impact on amortization period
    • Impact on interest cost over amortization period
    • Impact on balance at end of borrowing term
    • Expected life of financed asset
    • Prepayment allowances
    • Impact on alternative goals
    • History of debt management
    • Individual attitudes / preferences
  • Evaluate how each of the factors may impact the choice of debt repayment strategy. 
  • Calculate the impact of paying down or retiring debt.
    • On cash flow
    • On amortization period
    • On interest cost over the amortization period
    • On balance at end of borrowing term

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Determine how each of these factors may impact the ability to repay debt:
    • Net income
    • Rate of savings
    • Amount of savings
    • Debt levels
    • Interest rate on debt
    • Cash flow limitations / alternatives
    • Unforeseen events (i.e., disability, death of spouse)
    • Personal attitudes / preferences
    • Procrastination
    • Business failure / loss of employment
    • Relationship breakdown
    • Support of children / parents / family
    • Lack of knowledge / advice
    • Personal attitudes / choices
  • Identify debt repayment strategies, such as:
    • Prioritize paying down debt with the highest interest rate
    • Prioritize paying down debt with the smallest balance
    • Consolidate debt balances
    • Prioritize paying down debt with a specific covenant or purpose 
  • Calculate the amount of dollar assets required to pay down or retire debt.  
  • Calculate the amount of cash flow required to pay down or retire debt. 
  • Explain the impact on debt projections when assumptions differ from reality. 
  • Determine how each of these factors may impact the choice of debt repayment strategy:
    • Impact on cash flow
    • Impact on amortization period
    • Impact on interest cost over amortization period
    • Impact on balance at end of borrowing term
    • Expected life of financed asset
    • Prepayment allowances
    • Impact on alternative goals
    • History of debt management
    • Individual attitudes / preferences
  • Evaluate how each of the factors may impact the choice of debt repayment strategy. 
  • Calculate the impact of paying down or retiring debt.
    • On cash flow
    • On amortization period
    • On interest cost over the amortization period
    • On balance at end of borrowing term