THE ULTIMATE DEBT GLOSSARY

Struggling to pay your bills or manage your debt can be stressful and confusing. You may be at a disadvantage if you are unfamiliar with certain debt terminologies used by banks and credit card companies. It's a good idea to start with the basics when getting out of debt.

Use the glossary in this article to help you understand and expand your debt vocabulary. It breaks down debt terms in plain English.

40 DEBT TERMS YOU SHOULD KNOW

1. Annual Percentage Rate

The total annual cost of taking out a loan is represented by the annual percentage rate (APR). This rate includes all finance charges, including the interest rate. For instance, loan origination costs may be incurred when you take out a personal loan. The interest rate would be lower if you simply considered the interest rate because the loan origination charge is excluded. The Truth in Lending Act requires lenders to disclose the APR so you are fully aware of the cost of taking out a loan.

2. Arrears

This is a mortgage payment that a person owes but does not pay on time.

3. Authorized User

An authorized user is a person who is permitted to make purchases using another person's credit card but who is exempt from payment obligations.

4. Accrued Interest

This is determined depending on the outstanding sum and will increase until the debt is fully repaid. It is usually tougher to pay off debts with high-interest rates for this reason. The less the money from payments goes toward the principal balance, the more the interest owed.

5. Available Credit

Your credit card's available credit is the amount you can charge without exceeding your credit limit. The credit limits minus the balance and any pending transactions equal the amount of available credit.

6. Balance

Your credit card balance is the amount you still owe. The sum of your transactions, fees, and interest charges is the balance, minus any credits and payments. It is often referred to as the outstanding balance or the present balance.

7. Balance Transfer

You might be able to reduce your interest rate or consolidate your debt with the aid of a balance transfer. It operates by moving a loan or credit card amount from one company to another.

8. Bankruptcy

When a person is either completely or partially unable to pay their debts back, they resolve their debts through bankruptcy. Both secured and unsecured debt are included. The goal of bankruptcy is to shield you from your creditors while fairly allocating your assets to each of them.

9. CFPB (Consumer Finance Protection Bureau)

The Consumer Financial Protection Bureau (CFPB), also known as the Bureau of Consumer Financial Protection (BCFP), is a department of the US government in charge of financial sector consumer protection.

10. Charge-Off

Even though the debt is still owed, a charge-off means that your account is permanently terminated and written off as a loss to the credit card issuer. In most cases, a credit card account is charged off after it is 180 days (or a full 6 months) past due, unless your financial institution decides to charge off the account earlier.

11. Collateral

An asset known as collateral can be used to support or secure a loan by being pledged to a lender. Real estate, automobiles, cash, and investments are typical examples of collateral. For instance, when you take out a mortgage or auto loan, the house or car serves as the collateral for the loan. The lender may take back your automobile or foreclose on your house if you default on your loan. For secured loans, collateral is necessary; for unsecured loans, it is not.

12. Collections

When a payment is not made before the due date, a credit card account enters collections and becomes past due. You can get notifications regarding the missed payment or payments if it is in collections. Calls, emails, letters, remarks, internet messaging, and texts are some examples of these communication methods.

13. Co-Signer

By signing along with an applicant for a credit card, a co-signer provides support. By co-signing, the borrower guarantees to pay the credit card company in the event that the cardholder is unable to. Co-signers are not granted access to the credit card account, given access to a card of their own, or given monthly statements.

14. Credit Counseling

Typically nonprofit organizations, credit counseling services can assist you in managing your debt and money. Credit counselors are usually educated and qualified in consumer debt, money and debt management, and budgeting.

15. Credit Bureaus

Companies called credit bureaus build a picture of your creditworthiness using your credit report and credit score. Your conduct, including your payment history, is reported by credit card providers to credit bureaus. The three major national consumer credit reporting organizations in the US are Experian, TransUnion, and Equifax.

16. Credit Limit

The most you can charge on your credit card is determined by your credit limit. The parameters of the deal and your creditworthiness determine the credit limit. Lenders might periodically evaluate accounts and change a credit limit.

17. Credit Report

Your whole credit history is contained in credit reports, along with information on your employment background, residences, credit inquiries, credit cards and loans you have had in the past and present, the age of your accounts, liens, wage garnishments, and other information. Negative information, such as missed payments or charge-offs, can remain on your record for seven years, while bankruptcy-related information can remain for ten years.

18. Credit Repair

This disputes inaccurate information on your credit report with your creditors and other credit reporting agencies, such as late payments that were actually made on time or duplicate charges.

19. Custom Payment Plan

If you fail to make a credit card payment, you might be able to choose a personalized payment plan. Contact your credit card company if you forget to make a payment. They could agree to collaborate with you to develop a payment schedule you can afford to help you get back on track.

20. Debt

Debt is the money that you must pay back on your loan.

21. Debt Consolidation

Consolidating debt is a strategy to handle many debts. You might be able to combine (or consolidate) your debts into a single loan with a single monthly payment if you're already making payments on a number of loans each month.

22. Debt Relief?

Debt relief is the reorganization of debt in any shape or form to provide the debtor with a measure of respite, either fully or partially. It can involve persuading creditors to agree to accept less than the outstanding principal amount, lowering the interest rate on loans due, extending the term of the loan, or wiping the debt out altogether. Read about some debt relief strategies here.

23. Debtor

If you owe someone money, you are a debtor. You become a judgment debtor if a judge awards judgment against you.

24. Debt Settlement

Debt settlement companies are for-profit companies that negotiate with your creditors to settle your unsecured debt for less than what you currently owe. Instead of creating a modified repayment plan as a credit counseling agency does, for-profit debt settlement companies encourage you to stop making payments on your debts to your creditors and instead make payments into an account they control. As soon as your balance with the debt settlement company is high enough—the amount can depend on the company and type of debt—it will use the cash to negotiate with your creditors to settle for less than the current principal and interest amount.

25. Debt Settlement Company

Debt settlement companies arrange to settle your debts for you in exchange for a fee.

26. Delinquency

An account status that develops when a debtor fails to make a payment by the due date or according to the conditions of the loan arrangement.

27. Due Date

Your credit card provider must receive payment by your due date in order for it to be considered current.

28. Fees

Fees could result from being late on your credit card payments.

29. FICO Score

In the United States, the FICO score is a common method for determining your creditworthiness. Due to varying data and models, the FICO score may range between bureaus.

30. Forbearance

When a debtor is struggling financially and is unable to make payments for a while, creditors will postpone loan payments. This is called forbearance.

31. Garnishment

This occurs when a portion of a worker's salary is set aside to cover a lender until the remaining debt is repaid.

32. Hardships

When your income drops because of an unexpected job loss, sickness, injury, natural disaster, or other circumstances, that is considered a hardship.

33. Interest

Interest is money you pay on a regular basis at a set rate for the use of borrowed funds or for deferring debt repayment. If you do not pay your credit card bill in full each month, interest will be charged to your account.

34. Minimum Payments

The minimum payment on a credit card is the smallest amount you must pay each monthly billing cycle to keep your account current and avoid penalties and fees.

35. Past Due

If you miss a payment, your account is considered past due. The account is current once you make at least the minimum payment (no longer past due).

36. Principal?

The principal is the original amount borrowed on a loan, excluding interest and fees.

37. Priority Debt

The term priority debt can be used in a broad sense, but it also has a legal meaning. If you owe money to several creditors, you have your own opinion about which debts should be paid first. Most people would consider mortgage payments to take precedence over other loan payments.

The legal definition of priority debt may differ. In receiverships, liquidations, and bankruptcy, for example, the law specifies the order in which debts must be paid.

38. Residual Interest

Residual interest is the interest charged between the time a credit card bill is mailed and the time your payment is received. If you pay your balance in full each month, you get grace on all your purchases and don't have to worry about residual interest.

39. Secured Debt

A loan or line of credit secured by collateral, such as a car, home, or other assets. Typically, these loans have more favorable terms.

40. Unsecured Debt

A loan or credit line that is not backed by any assets. Credit cards and most personal loans fall into this category. Because these loans and credit lines are riskier for the lender, the terms are sometimes less favorable.

BOTTOM LINE

Did you find the term you were looking for? Or it was a case of serendipity for you? In any case, let us know if there's a term you'd like to learn about that we missed out, and we will add it to our glossary.