Debt Glossary

Debt Glossary -
Educate yourself on some common terms.

Below are some common terms related to loan and debt consolidation. We always welcome any questions that you may have regarding the student loan consolidation service we offer. Just fill out the form here. Click the link to apply for student loan consolidation.

Amortization
The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.

Annual Percentage Rate (APR)
The cost of carrying a balance on a loan expressed as an annual percentage. To calculate the amount owed in interest each month divide the APR by 12. For example, if the APR is 18% the monthly rate is 1.5%.

Asset
Anything owned by an individual that has a cash value. This includes property, goods, savings or investments.

Average Daily Balance
The average daily balance is a method used to calculate finance charges. It is calculated by adding the outstanding balance on each day in the billing period, and dividing that total by the number of days in the billing period. The calculation includes new purchases and payments.

Bad Credit
A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. "Bad Credit" can result in being denied credit.

Balance
The total amount of money owed. It includes any unpaid balance from the previous month, new purchases, cash advances, and any charges such as an annual fee, late fee or interest. The balance should not be confused with the monthly payment (the minimum payment allowed each month), which is generally 2% to 5% for revolving credit cards.

Balance Transfer
Moving a balance (debt) from one credit card to another. This is often done with special checks or forms, or may be offered as an option on some credit card applications. The usual reason is to shift an ongoing debt to an account with a lower interest rate.

Bankruptcy
Bankruptcy is a legal declaration of the inability to repay debts. Bankruptcy should be viewed as a last resort. It will have a severe impact on a credit rating and will remain on a credit report for ten years. Furthermore, bankruptcy is not a solution in all cases. Federal student loans, Federal tax debt and child support are all exempt from bankruptcy protection. Bankruptcy agreements vary but there are two types of agreements that most people choose: Chapter 7 and Chapter 13.

Beacon Score
This is your credit score that creditors look at when determining if you are credit worthy. Your Beacon Score is determined by negative entries such as late payments which would decrease your score or a positive, timely payment history on your accounts which would increase your score.

Billing Cycle
The number of days between statement dates. This is generally about 25 days.

Buy down
A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer's periodic payments to repay the indebtedness.

Chapter 13
In a Chapter 13 agreement, the court creates a debt repayment plan that allows the filer to keep their property. In order to file Chapter 13, a person must have a source of income and promise to pay part of their income to creditors. The court allows the filer to keep any assets that have debts against them if they pay them off under Chapter 13s. A Chapter 13 filing will remain on a credit report for 10 years. With Chapter 13, there is a better chance of obtaining future loans and credit.

Chapter 7
In a Chapter 7 agreement, the court resolves most debts by selling assets and property so that the filer is given a fresh financial start. The court takes all assets including cars, homes, furnishings, jewelry or anything else of value. The assets are sold to pay off the debt. There are some debts that a person may wish to repay on their own instead of having the court resolve it. This is called reaffirmation. Reaffirmation is a special payment plan with the court. For example, if a car loan is reaffirmed, the person keeps the car and makes payments under new terms. Chapter 7 bankruptcy will not eliminate debts due to taxes, child support, alimony, student loans, court fines or personal injury caused by driving drunk or under the influence of drugs. A Chapter 7 filing will remain on a credit report for 10 years.

Close-end Credit
Generally, any loan or credit sale agreement in which the amounts advanced, plus any finance charges, are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed end agreements.

Collateral
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)

Conditionality
Extra requirements other than repayment (such as ‘structural adjustment’ policies) demanded by the lender before new loans are granted.

Credit
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

Credit History
A record of how a person has borrowed and repaid debts.

Credit Scoring System
A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

Creditworthiness
A creditor's measure of a consumer's past and future ability and willingness to repay debts.

Default
Failure to meet the terms of a credit agreement.

Discharge
A legal Discharges meaning a court has erased your debt(s) not to be confused with a "charge off" or "write off" which is an accounting Discharge which does not erase debts.

Finance Charge
The total dollar amount paid to get credit.

Fixed Rate
A traditional approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest is applied to the principal.

Graduated Payment
Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization.

Liability
Legal responsibility to repay debt.

Lien
A notice a creditor attaches to your property that tells the world that you owe the creditor money. You cannot sell the property without paying off the creditor because the lien makes the "title" (history of ownership) cloudy and a new owner won't buy under those conditions.

Negative Amortization
Repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. Earned but unpaid interest is added to the principal, increasing the debt. Eventually, payments must be rescheduled to fully pay off the debt.

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Open-End Credit
A line of credit that may be used repeatedly up to a certain limit, also called a charge account or revolving credit.

Principal
Amount of the loan.

Reschedule
Revised timetable for loan repayments, usually granting longer repayment periods and often involving new loans to pay old ones.

Security Interest
The creditor's right to take property or a portion of property offered as security.

Service Charge
A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

Statement
The monthly bill from a credit card issuer that describes and summarizes the activity on an account. A statement includes the outstanding balance, purchases, payments, credits, finance charges and other transactions for the month.

Statement Date
The date on which a statement is generated, and the month's finance charges (interest) are added to the balance.

Surcharge
An extra charge imposed on those who purchase with a credit card instead of cash. (Currently, surcharges for credit card purchases are prohibited.)

Variable Rate
A variable rate agreement, as distinguished from a fixed rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.