Glossary Of Terms Related to Debt Settlement

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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Acceleration Clause
Allows the lender in a loan agreement to demand early payment (sometimes in full) for certain reasons, such as defaulting on the loan, destruction of property, or transfer of title.

Additional Principal Payment
Extra money that is included in a monthly payment above what is necessary. It is applied to the outstanding balance and allows a debt to be paid off more quickly.

Adjusted Balance
The remaining balance on a debt after payments have been subtracted from the original balance, not including interest or fees. A consumer-friendly practice, it allows the interest rate to be based on the adjusted amount instead of on the original amount.

Amortization
Paying off debt gradually in partial payments rather than in one lump sum.

Annual Percentage Rate (APR)
The cost of a loan expressed as a yearly rate. The monthly interest rate simply is the APR divided by 12. By law, creditors are obligated to reveal the APR.

Arbitration
A forum to settle disputes without the formalities of a trial. Many credit card companies have mandatory arbitration clauses in their contracts. The National Arbitration Forum (NAF) is the venue for most credit card arbitration hearings. Also referred to as alternative dispute resolution (ADR).

Arrears
The state of a payment that has not been made on time. Unpaid debts are said to accumulate as such.

Average Daily Balance
The amount computed by determining how much is owed on a debt for an average day during a particular billing period. It is the method by which most credit card companies and banks determine due interest.

B

Bad Credit
Describes the status of someone who is considered "high risk" for credit lenders. Variables which can lead to such a label include non-payments, late payments, overuse of credit, or filing bankruptcy.

Billing Cycle
The amount of time between billing statement dates, usually about 25 days.

Buydown
Lowering of the interest rate and/or monthly payments on debt due to a substantial additional payment while the debt is new. In other words, borrowers "buy" better rates.

C

Cash Advance Loan
A loan that is granted to borrowers when a small amount of money is needed to cover funds until they receive their next paychecks. Once the paycheck is received, the cash advance loan must be repaid, often at a very high interest rate. Also known as a Payday Loan.

Chapter 7 Bankruptcy
A proceeding in federal court in which an insolvent debtor's assets are liquidated and the debtor is relieved of further liability; reported on one's credit profile for 10 years. Commonly referred to as liquidation bankruptcy.

Chapter 13 Bankruptcy
A proceeding in federal court in which a debtor is ordered to follow a repayment schedule for 3 to 5 years in order to satisfy their debts; reported on credit profile for 7 years.

Charge-off
When a debt is considered uncollectible and is removed from active accounts, and when the balance due is removed from the record of the creditor's assets. Payment may be demanded in full or negotiated to a lesser amount, or the account may be sold to a collections agency.

Complaint
A legal document with information about why you are being sued, how much you owe, etc. Typically received with a summons to court.

Conditionalities
Additional requirements or responsibilities relative to a loan or debt other than simple repayment.

Consumer Bankruptcy
A legal debt relief option for those gravely in debt without other financial alternatives. A declaration that one cannot pay the debts for which he or she is liable, filing bankruptcy can discharge debts or reduce them within the context of a realistic payment plan.

Consolidation
Combining multiple loans into a single loan, often at a lower interest rate and with smaller monthly payments.

Collateral
Property of value (such as a house or car) that is used as security for the repayment of a loan. Should the borrower fail to pay, the lender may take and sell the property as payment.

Credit
Funds provided from a lender to a borrower that must be repaid.

Creditor
The person or company to which borrowers owe money for goods or services, or for repayment of a loan. One who extends credit; the lender in a loan situation.

Credit Bureau
An agency that records consumer credit history and provides credit reports and scores. The three main agencies are Experian, Equifax, and TransUnion.

Credit Counseling
Professional advice given to consumers about financial planning, budget management, and methods of debt repayment. Also known as CCCA.

Credit Insurance
A policy that protects the lender in the event that the borrower passes away, becomes unemployed, or becomes ill before the debt is fulfilled. Payment is made through the policy.

Credit Limit
The maximum amount of money that one may charge on a credit card, or may take out in a loan.

Credit Line
The total of revolving credit that may be borrowed partially or in full against an account. Once the debt is repaid, the borrower make use that credit again, and may do so as many times as he or she wishes.

Credit Report
A document that records the credit history of a particular individual. Consumers have a report at each of the three main consumer credit agencies -- Experian, Exuifax, and TransUnion. It may be examined by creditors to determine "credit worthiness".

Credit Score
A score between 300 and 900 that is determined by one's credit history, and is a representation of one's "credit worthiness". It may be used by creditors to decide whether or not to extend credit, as well as what interest rate one may receive.

D

Debt
Money that is owed to a person or a business in exchange for goods or services, or for repayment of a loan.

Debt Consolidation Loan
A loan obtained to pay off multiple other loans. Such loans tend to have lower interest rates, and also allow the borrower to make only one payment per month instead of many.

Debt Management Plan
A method of debt relief that involves formulating payment plans with one's creditors to pay down debts while sticking to a realistic budget. Credit counseling agencies often promote DMPs as the best alternative, and sometimes they are.

Debt Relief
The total or partial forgiveness of debt obligations through either a reduction in interest, the balance owed, payment terms, or all of the above; commonly refers to debt settlement, bankruptcy, and credit counseling, but can refer to anything that alleviates one's debt burdens.

Debt Settlement
A process of negotiating with creditors to accept payment that is less than the full amount of the debt owed. Funds accumulate in a special account until enough has been saved to pay off one creditor, and then the process repeats until the debts have been repaid.

Debtor
A consumer who owes money to a creditor in exchange for goods or services, or for repayment of a loan.

Debt-to-income Ratio
A comparison of monthly expenses to monthly earnings expressed as percentages.

Default
Failure to pay as required by law or contract, such as in a mortgage or deed of trust agreement. Generally, a loan is considered in default if payment is 30 days past due, and collections actions may be initiated.

Delinquency
Failure to make monthly payments on a debt on time.

Discharge
A borrower is relieved of liability for repayment of debt. This usually is accomplished through filing bankruptcy.

E

Equal Credit Opportunity Act
Federal law passed by Congress in 1974 that prohibits discrimination against credit applicants based on race, color, religion, national origin, sex, marital status, age, or public assistance.

Equity
Usually defined as the difference between the market value of a piece of property and any debts against it, such as outstanding mortgages, claims, liens, rights or liabilities. Equity in a home rises as such debts decrease and/or as the value of the property increases.

Exemptions
The amount of property, savings, or wages that is protected should a creditor win a judgment against you. Exemptions differ from state to state, and many times you have to file specific papers in order exercise your exemptions.

F

Fair Credit Billing Act
Federal law passed by Congress in 1975 to protect consumers from billing and computational errors. Additionally, it requires that payments be credited the day they are received. Consumers may sue if a creditor is in violation of the act.

Fair Credit Reporting Act
Federal law passed by Congress in 1970 that regulates consumer credit reporting and disclosure of credit information. Among other protections, it gives consumers the right to view their credit reports once per year, and outlines methods to correct false information.

Fair Debt Collection Practices Act
Federal law passed by Congress in 1977 that protects consumers against harassment or abuse from collections agencies.

G

Garnishment
One way that creditor with a judgment is allowed to collect any amounts owed to them, depending on your state. A creditor can only garnish your wages after a judgment is won and specific papers are filed and in turn your employer or bank is notified. Most states protect 75% of your net earnings, but some states like Texas and Pennsylvania have 100% wage protection. It is also possible to have a garnishment lifted or reduced depending on your financial situation. Also referred to as an attachment.

Grace Period
A period of time during which a payments on a debt are not yet due. A common example is the six to nine month grace period after college graduation for repayment of federal student loans.

Graduated Payment
A type of loan repayment schedule in which payments start out small and increase gradually over time.

Gross Income
Total earnings before any taxes, deductions, or expenses are taken out.

H

I

Interest Rate
A fee charged for the use of credit expressed as a percentage of the debt. It is calculated for a certain period of time, often over a year.

Interrogatories
Very specific and typically long-winded questions sent to one party of the lawsuit by the other after an Answer has been filed. Failure to respond to the interrogatories may help the creditor win a summary judgment.

Introductory Rate
A low initial interest rate charged on credit that eventually rises once the specified introductory period is over. It is offered to attract new customers.

J

Judgment
In the event you are sued and lose the case, the creditor wins a judgment, which allows them to garnish your wages, put a lien against your property, or levy your bank account depending on your state laws.

K

L

Liability
Legal responsibility or obligation to something. Consumers who are in debt are liable for repayment.

Lien
A legal notice attached to your property that you owe a creditor. A lien forces you to pay back the creditor if you sell or refinance your property.

Levy
One way for a creditor to collect on a judgment. Similar to garnishment, but applied specifically to bank accounts.

M

Minimum Payment
The smallest amount of money that one may pay on a debt in order to keep the account from going into default. Often it encompasses only the interest on a debt, so it may be impossible to pay off some debts by making only such payments.

N

National Foundation for Consumer Credit
A national nonprofit agency whose members are cerfified, professional credit counselors. A reputable place to search for a counselor.

Negative Amortization
The situation in which partial payments are made on in debt, but instead of lowering the debt gradually, it increases the debt gradually. This can occur if payments made do not cover the interest, which then is added to the balance over time.

O

Over-limit Fee
A fee that is charged to credit borrowers who expand their balances past the allowable credit limits.

P

Payday Loan
A loan that is granted to borrowers when a small amount of money is needed to cover funds until they receive their next paychecks. Once the paycheck is received, the cash advance loan must be repaid, often at a very high interest rate. Also known as a Cash Advance Loan.

Point-of-Sale
The literal place and time at which a transaction or agreement takes place.

Power of Attorney
Written documentation that authorizes a person to act on behalf of another person in certain specified situations, or in general.

Principal
The amount of an original debt that has not yet been paid. It does not include interest, but rather is the balance on which interest is based.

Q

R

Re-age
The status of an account (current, delinquent, etc.) is updated to reflect the present situation.

Revolving Line of Credit
A loan agreement in which a certain amount of money is able to be borrowed. As long as the loan is repaid, the borrower may obtain more money up to the limit of the agreement without having to apply for a new loan. Home equity lines of credit and credit cards utilize this method.

S

Secured Debt
A debt that protects the lender from loss in the case of default by securing it with valuable property. If the debt is not repaid, the property legally may be taken and sold by the lender for payment. Mortgages are common examples.

Summons
A formal notification in mail or by service processor (sometimes a sheriff) that you are to appear in court on a specific date.

T

U

Unsecured Debt
A debt that is not secured against property. In the event that an account goes into default, there is no property that automatically can be taken in order to cover the lender's costs. Credit cards are common examples.

V

W

Wraparound
An old loan is combined with a new loan, which results in an interest rate somewhere between the individual interest rates.

X

Y

Z