There are many terms used when it comes to credit counseling, debt, debt collections, and debt relief. Knowing what the various terms mean can help when you’re trying to get your finances back on track. We’ve decided to create a debt terminology glossary for you to take the guesswork out of managing your finances!
Here is a glossary of common financial & debt related terms:
401(k) — A type of qualified employer-sponsored retirement plan where employees can contribute a portion of their salary into the plan. Taxes are deferred until the money is withdrawn. Certain programs match a percentage of employee contributions.
403(b) — A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations such as 501(c)3 Non-Profit agencies, and certain ministers or priests.
Accrued interest — This is interest on a bond or loan that builds on itself until a debt is completely paid off. It is determined by the unpaid balance of the original loan and it is calculated based on the last day of the accounting period.
Alimony — Also known as Spousal Support is a court-ordered obligation to offer financial support to your spouse or ex-spouse before or after a separation or divorce.
Annual Percentage Rate (APR) — Amount shown as a percentage that represents yearly costs of borrowing over the term of the loan or credit card.
Assets – This is property owned by a person or company that is regarded as having value and available to meet debts, commitments, or other financial needs.
Bankruptcy — This is a legal procedure where the person’s assets are dissolved by the court to pay for their overdue financial obligations. Although the debtor is able to start over, the negative mark of bankruptcy remains on their credit report for 7 to 10 years. There are two types of bankruptcy for individuals, Chapter 13 and Chapter 7. Click here to find out the difference between them.
Charge-off — This is an account that has been delinquent, usually for at least 180 days. After that time frame, the creditor reports that the debt was “charged off” because they never received a payment.
Credit Counseling — A session, during which a certified credit counselor reviews your entire financial picture, helps you to establish a budget, and creates a personalized action plan to help you reduce your debt and get your finances back on the right track.
Credit Report — A detailed report of your credit history and utilization that includes all types of credit accounts and any late payments, negative remarks, or charge-offs.
Credit Score — A number, ranging between 300 and 850 that most lenders use as a measure of how creditworthy a borrower is. A credit score is calculated based on information contained in your credit report including your payment history, length of credit history, amounts owed, new credit and types of credit.
Debt Consolidation Loan — A single loan which may be secured or unsecured that is taken out in order to pay off other debts.
Debt Management Plan — A plan managed by a credit counseling agency in which the agency negotiates interest rates and payment amounts on behalf of the consumer. The consumer then makes one payment to the credit counseling agency, which in turn distributes the payments to the creditors.
Debt Settlement — When a creditor settles a debt amount with a borrower, but the settled debt must often be paid in one lump payment (ex. The creditor is willing to accept a settlement of $4,000 on a credit card with a $7,500 balance). Consumers who choose debt settlement may have to pay income tax on the forgiven debt amount. There may also be negative effects on your credit report and score.
Disbursement — Disbursement is the act of paying out or disbursing money. In a Debt Management Plan, it means your money is sent directly to your creditors each month.
Installment Debt — This is debt where the consumer pays a set amount each month until the debt is paid off. An example of this would be a car loan.
Liability — This is an obligation for repaying a loan or credit in addition to the charges and interest.
Paid in full — A completed status on a credit report that shows debts as being paid off, rather than reduced or settled. You don’t owe any money on an account that’s paid in full.
Principal — This is the amount borrowed, minus any fees and/or interest.
Revolving Debt — Debt that can increase or decrease depending on payment amounts, interest rates and use of open credit. An example of revolving debt would be a credit card.
Secured Debt — This is debt that you have collateral to back up. A mortgage would be considered a secured debt because the creditor could confiscate the property if you do not pay the loan. A car loan is also considered a secured debt.
Unsecured Debt — This is a debt you have incurred but have no assets to back it up. Credit card debt, personal loans, or medical debt would be examples of unsecured debt.
We hope you’ve found this information educational and informative. Are there any other debt or financial related terms that you hear on commercials or see while reading about finances that you’re curious about? If so, you can always give us a call for a free credit counseling session and we can answer any questions you may have. Call us today at 866-699-2227 or visit us online at www.advantageccs.org.