The Ultimate Guide to Debt Consolidation Speak

Finally, a Debt Consolidation Glossary that Actually Makes Sense!

Acceleration clause – If you default on your loan payment your borrowing agreement will state that the creditor can demand full payment on the balance of your loan.

Additional principal payment – This tactic is used to pay a loan off more quickly when you pay more than the minimum monthly payment due.

Adjusted balance – Lenders will do this in good faith and to keep good customers. They will charge interest on a loan is based on the amount owed instead of on the original loan amount.

Amortization – Refers to the act of making set payments on a mortgage or loan as opposed to paying off the entire balance in one large payment.

Annual percentage rate – also referred to as the APR on your loan. To get the APR on any loan multiply the monthly interest by 12 months. This will give you the interest you will owe on an annual basis.

Arrears – A loan is in arrears when you default or don’t make by the specified due date.

Average daily balance - The amount owed on a loan on any average day in a monthly billing period.

Bad credit – Refers to your past credit history. If you have missed loan payments, or maxed out your credit cards you will be labeled as “high risk” in the eyes of potential lenders.

Billing cycle – Refers to the amount of time between credit card statement due dates. A billing cycle is typically 25 days.

Buy down – Buying a better interest rate when you pay a large lump sum on a recent loan.

Cash advance – Also called a Payday loan, a cash advance is literally cash advanced in the form of a loan that is given in between paychecks.

Charge-off – A lender will consider a debt in charge off if they determine the loan won’t be collected. Charge off loans are typically sold to collections agencies for pennies and collected for the balance or a reduced debt amount.

Conditionals – Any additional requirements in a borrower’s agreement.

Customer bankruptcy – If you can’t pay debts owed a person can claim bankruptcy, when their loans are absorbed/waived in a court of law and new repayment terms are negotiated.

Consolidation – When all loans are put into a single loan it is known as debt consolidation.

Collateral – Any personal asset – property, a house, jewelry, investments or a car - that is put up for the repayment of a loan if the borrower defaults on a loan.

Credit - Funds provided in advance to a borrower via a creditor. The credit will carry interest on any outstanding debt owed to the creditor.

Credit reporting agency - or credit bureau collects and records the credit history and credit score of every credit using citizen. Credit reports are a detailed report to provide to potential lenders. In the U.S. there are 3 major credit reporting agencies - Experian, Equifax, and TransUnion.

Credit counselors – help those with low credit scores and those in debt learn about proper financial planning, budgets and aid with improving credit scores and debt repayment.

Credit insurance – An insurance policy that protects the actual borrower in cases of job loss, illness, death or other emergency if they owe debt to creditors.

Credit limit - The maximum amount of money that you can charge on your credit card on a monthly basis.

Credit report - A financial report card that documents your full credit history. A good credit report means you are a “low credit risk” and you have paid back loans in full and responsibly. Bad credit reports mean that you are a “high credit risk” and have been irresponsible with debt repayment. There are 3 main credit bureaus – Experian, Exuifax, and TransUnion – that compile individual credit histories and provide them to potential lenders upon request.

Credit score – Is a 3 digit number that determines a person’s credit worthiness. Your credit score is determined by a mathematical equation created by the Fair Isaac Corporation or FICO. Your score with fall between 300 and 900, but generally credit scores below 620 are poor and scores above 720 are good.

Creditor – The lender of credit or loans.

Debt – Any money that is lent via a creditor to a borrower and must be repaid according to a monthly repayment plan.

Debt consolidation – All small loans are grouped/consolidated and paid under one large loan amount with the same interest rate and monthly payment date.

Debt repayment plan – or DRPs are used by credit counselors to help you come up with a realistic debt repayment schedule that you can afford.

Debt settlement - The negotiation of a reduced payment amount on the balance of your debt with a collections agency. Oftentimes they will agree to this because they have purchased/settled your debt with creditors for peanuts and will still make a profit off a reduced payment amount.

Debtor – The borrower or the individual customer who owes money (a debt) to a lender.

Debt-to-income payment – A ratio that determines your monthly debt to match or correspond with your monthly paycheck.

Default – the failure to make a loan payment as set out in your borrower’s agreement. A defaulted loan payment negatively impacts your credit rating.

Delinquency – similar to default, is a missed or absence of a monthly loan payment.

Discharge – is the actual absorption or waiver of debt upon the declaration of bankruptcy.

Equity – Is the amount that your assets are worth, typically property, after outstanding mortgage payments, claims, liens or money owed is deducted.

Fair Credit Billing Act – or the FCBA, was created by the Federal Trade Commission in 1975 in order to protect customers from credit abuse and inaccuracies.

Grace period - A pre-determined amount of time where loan payments are waived – for example the recipient of a student loan has 6 months until their loan payments kick in.

Gross income – Your earnings before taxes are deducted.

Interest rate - A pre-determined fee that a borrower pays on top of the debt owed.

Minimum payment - The lowest amount of money due on the balance of your debt on your credit card that keeps the loan from going into default.

Over-limit – when you max out your credit card you are charging over the maximum credit limit lent to you. There is often a penalty charged for going over-limit.

Payday loan – is a cash advance that is lent in between paychecks.

Power of attorney – Used most often in the event of death to read the terms of a will and testament, a power of attorney acts on behalf of the deceased or ill according to their pre-determined financial wishes.

Principal – The outstanding amount owed on a loan or debt.

Secured debt – A debt that is backed by collateral (in the form of a deposit or the risk of a personal asset – such as a home, property, a car or an investment), so if the borrower defaults on the loan the lender can take the collateral as payment.

Unsecured debt - A debt that is not backed by collateral such as a traditional credit card.