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Financial Term Glossary

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A

Accounts Receivable

If you owe money to a creditor or lender, someone from the accounts receivable department may call you to collect payment on your unpaid debt.

Amortization

Amortization, or loan amortization, refers to how loan payments are spread out over a fixed time period, how much of each payment goes to interest charges, and how much is applied to the principal balance owed.

Amortization Schedule

A visual breakdown of loan amortization, including the total number of payments that will be made, when each payment is due, and how much of each payment is applied to the principal and interest.

Annual Percentage Rate (APR)

Annual percentage rate or APR is the percentage of the total loan amount a loan will cost you each year, including interest and fees.

Appraisal

An appraisal is a professional assessment of a home's value. It’s typically required when you get a mortgage, home equity loan, or home equity line of credit (HELOC).

Asset

An asset is anything that you own or have the right to own.

Automatic Debit

Automatic debit is when money is withdrawn from your bank account automatically (without any effort by you) to pay a bill.

Automatic Stay

An automatic stay is a court order that prevents creditors from taking collection actions against people who have filed for bankruptcy.

B

Bank Account Levy

A bank account levy (or bank account garnishment) is a legal way for a creditor to take money from your account to pay a debt.

Bankruptcy

Bankruptcy is a formal legal procedure for dealing with debt through the court system. Bankruptcy protects debtors (the ones who owe money) and creditors (the ones who are owed) when unforeseen events prevent the agreed-upon repayment of debts. Most individuals file either Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy Judge

A bankruptcy judge is someone who oversees bankruptcy proceedings and rules on motions. The bankruptcy judge decides whether the person is eligible to file, and ultimately decides the final outcome of the case.

Bankruptcy Means Test

The bankruptcy means test is a mathematical formula that's used to determine whether someone qualifies to file a Chapter 7 petition.

Bankruptcy Trustee

A bankruptcy trustee is a court-appointed person who oversees the administration of a bankruptcy case, mainly for the benefit of creditors.

Borrower

A borrower is someone who receives a loan or line of credit and agrees to repay it, typically with interest.

Budget

A budget is a plan for how you'll spend the money you bring in each month.

C

Cease-and-Desist Letter

A cease-and-desist letter is a formal letter sent to a creditor or debt collector demanding that they stop all contact regarding the debt.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows debtors to repay their debts over three to five years, without giving up any of the things they own.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy discharges (wipes out) many types of debt. In exchange, the person filing (the debtor) may have to give up some of the things they own (their assets).

Charge-Off

A charge-off is when a creditor writes off an unpaid debt as a loss.

Co-Signer

A co-signer is someone who guarantees repayment of a debt for someone else.

Collateral

Collateral is an item of value the borrower pledges to the lender as a guarantee that he or she will repay the loan.

Collection Agency

A collection agency is a business that collects unpaid debts. The agency may collect money for the original lender or may be a debt buyer that buys the right to collect the debt.

Collection Agency

A collection agency is a business that collects unpaid debts. The agency may collect money for the original lender or may be a debt buyer that buys the right to collect the debt.

Combined Loan-to-Value (CLTV) Ratio

A combined loan-to-value (CLTV) ratio is your total home debt compared to your home’s market value. CLTV includes your mortgage, if you still have one, and any home equity loan or HELOC you have or want. You get your CLTV by dividing the total debt by the value of your home.

Compound Interest

Compound interest is interest that’s calculated more than once during the term of a loan.

Credit Bureau

A credit bureau is a company that gathers information about your experience with credit accounts. They put it into a credit report that lenders can purchase when you apply for credit. The three major credit bureaus in the U.S. are Experian, TransUnion, and Equifax.

Credit Card

A plastic or metal card attached to a line of credit that allows the cardholder to borrow cash or purchase goods and services up to a preset limit.

Credit Counseling

Credit counseling could help you master your finances. Credit counseling is a service, usually offered by nonprofit groups, that helps people get a handle on their finances, especially when they're learning money management or dealing with debt.

Credit Counseling

Credit counseling could help you master your finances. Credit counseling is a service, usually offered by nonprofit groups, that helps people get a handle on their finances, especially when they're learning money management or dealing with debt.

Credit Report

A credit report is a collection of financial information about you and your credit accounts, which includes credit cards, loans, or lines of credit you have.

Credit Score

Your credit score is a three-digit number based on your experience with credit. Credit scores are calculated using the information in your credit reports.

Credit Utilization Ratio

Your credit utilization ratio is the revolving debt balance that you owe compared to your credit limit. It’s expressed as a percentage. Higher utilization can hurt your credit scores.

Credit Utilization Ratio

Your credit utilization ratio is the revolving debt balance that you owe compared to your credit limit. It’s expressed as a percentage. Higher utilization can hurt your credit scores.

Creditor

A creditor is a business or person to whom a debtor owes money. Also known as a lender.

Creditworthy

Creditworthy means having the ability to be approved for credit.

D

Debit Card

A debit card is a plastic or metal card linked to a checking account. You can use it to withdraw or deposit cash, or to make purchases with the money in the linked account.

Debt Avalanche

A debt payoff strategy that prioritizes the most expensive debt.

Debt Collector

A debt collector is a person or company whose primary purpose is to collect debts. Debt collectors can include debt buyers, collection agencies, and lawyers, and there are laws and rules they have to follow.

Debt Collector

A debt collector is a person or company whose primary purpose is to collect debts. Debt collectors can include debt buyers, collection agencies, and lawyers, and there are laws and rules they have to follow.

Debt Consolidation

Debt consolidation allows you to combine multiple debts into a single loan to make paying your debt more manageable.

Debt Forgiveness

Debt forgiveness is when a creditor agrees to cancel or forgive all or part of a debt you owe.

Debt Management Plan

A debt management plan is a structured debt payoff plan set up and managed by a credit counseling agency.

Debt Negotiations

Debt negotiations are when you or a debt relief company talks to your creditors about lowering the amount you owe.

Debt Relief

Debt relief is the process of negotiating with creditors to reduce your debt.

Debt Relief

Debt relief is any action that helps you manage or deal with your debts. Sometimes debt relief involves reorganizing your debt to make it more manageable. Debt relief could also mean resolving the debt for less than the full amount you owe.

Debt Snowball

The debt snowball is a debt repayment strategy where you pay off balances from lowest to highest.

Debt Validation

Debt validation is the information that debt collectors are required by law to give you when they first contact you about a debt.

Debt Validation

Debt validation is the information that debt collectors are required by law to give you when they first contact you about a debt.

Debt Validation Letter

A debt validation letter is a request you send to a debt collector, asking for detailed information regarding your debt. It's your way of ensuring a debt is yours.

Debt Validation Letter

A debt validation letter is a request you send to a debt collector, asking for detailed information regarding your debt. It's your way of ensuring a debt is yours.

Debt Validation Notice

A debt validation notice is a written notice from a debt collector to you. It gives you detailed information about the debt they're trying to collect. The Fair Debt Collection Practices Act (FDCPA) is a federal law that requires debt collectors to send you a debt validation notice.

Debt Validation Notice

A debt validation notice is a written notice from a debt collector to you. It gives you detailed information about the debt they're trying to collect. The Fair Debt Collection Practices Act (FDCPA) is a federal law that requires debt collectors to send you a debt validation notice.

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the proportion of your income that goes to debt repayment and housing expenses each month. Lenders can use DTI to determine whether you have enough room in your monthly budget for a new loan.

Debtor

A debtor is a person who owes money to a creditor. In a legal proceeding like bankruptcy, the debtor is the one asking for relief (debt forgiveness) under the bankruptcy code.

Dedicated Account

A dedicated account is an account set up on your behalf by a debt relief company to hold funds that are used to negotiate with your creditors.

Default

Default occurs when you stop making payments on debt that you owe.

Default Judgment

A default judgment means one party wins a court case because the other party didn’t show up or follow required procedural steps.

Deferment

Deferment is when a borrower is permitted to take a temporary break from making payments on a debt.

Delinquent

Delinquent debt is a debt that hasn’t been paid by the due date.

Deposits

When you’re in a debt relief program, deposits are automatic, scheduled transfers from your bank account into your Dedicated Account (or program account). The debt settlement company uses the deposits in your Dedicated Account to fund negotiated agreements with your creditors.

Desk Appraisal

A desk appraisal is a home appraisal that's done remotely, rather than in person, when someone applies for a home equity loan or home equity line of credit.

Discharge

A discharge is a court order from a bankruptcy judge that releases the person who filed for bankruptcy from the dischargeable debts listed in the bankruptcy case. In other words, those debts are wiped out.

Dismissal

A bankruptcy dismissal is an order that stops a bankruptcy case and any related proceedings without wiping out any debt.

Dispute a Debt

A process for debtors who disagree about a debt to get more information about it.

Draw Period

A draw period is the window in which you can borrow against your home equity line of credit.

E

Emergency Fund

An emergency fund is a reserve of money saved for unexpected expenses and financial emergencies.

Enrolled Debts

Enrolled debts are debts you include in your debt relief program.

Exempt Property

Exempt property is assets that a bankruptcy filer is legally allowed to keep in a bankruptcy proceeding.

F

Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act (FDCPA) is a federal law that governs how debt collectors operate and extends certain protections to consumers.

Fair Market Value

Fair market value (FMV) is the price a buyer would pay to purchase a home, given the current market conditions and supply and demand. You can ballpark your home’s fair market value using online real estate sites, but lenders rely on sophisticated valuation software or a licensed real estate appraiser.

Federal Student Loans

Federal student loans are loans provided by the U.S. government to help students pay for college.

FICO Score

A FICO Score is one brand of credit score that creditors and lenders use to determine creditworthiness.

Finance Charge

A finance charge is the total cost of borrowing, including fees and interest.

Financial Emergency

A financial emergency is an unplanned expense or life event that impacts your finances.

Financial Hardship

A financial hardship is a situation that makes it difficult to keep up with monthly debt payments.

Financial Health

Financial health refers to your overall financial situation, and your ability to manage income, expenses, debt, savings, and investments.

Fixed Expense

A fixed expense in a budget is a cost that stays the same or varies little from month to month.

Fixed Interest Rate

A fixed interest rate doesn’t change for a designated period of time.

Forbearance

Forbearance provides temporary relief to borrowers who have trouble making loan payments.

Foreclosure

Foreclosure is a legal process that lets a lender take possession of the real estate that’s tied to a defaulted mortgage loan.

G

Garnishment

Garnishment is a court order that tells an employer to withhold a portion of your wages and send it to your creditor.

Garnishment

Garnishment is a legal process that allows a creditor to take money from your paychecks or bank account to satisfy a judgment for a debt.

Grace Period

A grace period is a set time frame in which no payment may be due on a debt and/or no interest may accrue on the balance.

Grant

A grant is a gift of money that doesn't need to be repaid.

Gross Income

Gross income is how much you earn from all income sources before deductions are made.

H

Hard Inquiry

A hard inquiry or hard credit pull happens when someone you authorize, such as a lender, checks your credit history because you applied for credit.

Home Equity

Home equity is the difference between what you owe on your mortgage and how much the home is worth.

Home Equity Line of Credit (HELOC)

A home equity line of credit or HELOC is a revolving line of credit that's guaranteed by your home.

Home Equity Loan

A home equity loan is a loan against your home equity (the difference between your home’s value and the amount you still owe on your mortgage). A home equity loan is a mortgage.

I

Impulse Purchase

An impulse purchase is a spontaneous, unplanned decision to buy something.

Installment Loan

An installment loan is money you receive in one lump sum and repay in equal monthly payments, called installments.

Interest

Interest is the amount you pay to borrow money.

Interest Capitalization

Interest capitalization is the unpaid accrued interest that’s added to the principal balance of a loan.

Interest-Only Payments

Interest-only payments are payments that cover only the interest you're charged on a loan.

Irregular Income

Irregular income is earnings that vary from month to month.

J

Judgment-Proof

Judgment-proof means you don’t have enough income, money, or other assets to satisfy a legal judgment against you. In other words, even if a creditor sues you and wins, there's nothing they can legally take from you.

L

Large Expense

A large expense is a big-ticket item that costs more than the normal items in your budget.

Lender

An individual, group of investors, institution, or company that provides money to a borrower and expects to be repaid under the terms of an agreement.

Liability

A liability is a debt or a financial responsibility you have to someone else.

Lien

A lien is a legal claim against property.

Loan Agreement

A loan agreement spells out the terms of a loan and the rights and responsibilities of both the borrower and the lender. This agreement is a binding contract once signed by both parties.

Loan Principal

Loan principal is the money you still owe on a loan minus interest or fees you've agreed to pay.

Loan-To-Value (LTV) Ratio

Loan-to-value (LTV) ratio refers to the percentage of your home’s value still owed to a lender. LTV is commonly used by lenders when you apply for a mortgage or home equity loan.

M

Military Lending Act

The Military Lending Act (MLA) is a federal law that extends special loan protections to military members.

Minimum Payment

A minimum payment is the minimum amount that must be paid toward a debt each month.

Mortgage

A mortgage is a secured loan that’s guaranteed by real estate. If you don’t repay the loan as agreed, the lender could sell the real estate to recover the money you owe. If you do repay the loan as agreed, the lender is legally obligated to release its claim on the property to you.

N

Needs

Needs are the essentials that you need to survive, such as housing, food, and transportation.

Negative Amortization

Negative amortization is when a loan balance goes up instead of down over time. It could happen when a borrower's monthly payment isn't enough to cover the interest charges.

Net Income

Net income is the amount of money you take home after taxes and other deductions.

Non-Dischargeable Debt

Non-dischargeable debt is debt that can’t be wiped out in bankruptcy. This category typically includes child support, most government-backed student loans, certain fines, restitution, and recent tax debt.

O

Original Creditor

An original creditor is a lender that advances money to a debtor.

Origination Fee

A loan origination fee is a charge added by some lenders to cover the cost of administering your loan.

Out-of-Pocket Cost

Money that comes directly from your funds is considered an out-of-pocket cost.

Overdraft

An overdraft means a withdrawal (a draft) that's more than the balance in your account.

P

Personal Finance

The term personal finance refers to all the factors that go into building a stable financial life.

Personal Line of Credit

A personal line of credit is a type of loan that allows you to borrow, repay, and borrow more, up to a preset limit.

Personal Loan

A personal loan is a lump sum of money you borrow for personal needs.

Pre-Approval

When you're pre-approved for a loan, it's a sign the lender has studied your credit profile and determined that you're likely to be approved for the loan.

Prepaid Card

A prepaid card is a payment card that allows you to spend the money that’s already in the account associated with the card. Prepaid cards typically have major credit card logos on them and look just like any other credit card or debit card.

Prepayment Penalty

A prepayment penalty is a fee some lenders charge for paying off a loan off early.

Prequalification

Prequalification is an initial assessment of whether you qualify for a loan or other financial product, and at what terms.

Primary Account Holder

The person whose name is officially listed as the main owner of a financial account is the primary account holder.

Prime Rate

The prime rate is an interest rate that some banks rely on to set the rates they charge.

Priority Claim

Priority claims are unsecured debts that must be paid before other debts in a bankruptcy case.

Private Student Loans

Private student loans are offered by loan companies and banks to cover educational expenses.

R

Reaffirmation

Reaffirmation is an arrangement in which a Chapter 7 bankruptcy filer continues paying a dischargeable debt (such as an auto loan), usually so they can keep the collateral (i.e., the car).

Refinance

A refinance is when a borrower replaces an existing loan with a new loan.

Repayment Period

A repayment period is the time you have to repay a loan.

Resolved Debt

A resolved debt is one that has been successfully negotiated and cleared for less than the full amount owed.

Resolved Debt

Resolved debt is debt that has been cleared for less than the full amount owed.

Revolving Credit

Revolving credit is a continuously open line of credit that remains available over time, even after you pay the entire balance. Revolving credit typically comes with a predetermined spending limit.

Risk

Risk refers to how confident a lender is that you can repay a loan or credit card extended to you.

S

Second Mortgage

A second mortgage is a loan against a piece of real estate that already has a primary mortgage against it.

Secured Credit Card

A secured credit card is a type of credit card that’s backed by your cash deposit.

Secured Loan

A secured loan is guaranteed by something valuable, like a car or home, that the lender can take and sell if you don't make your payments as agreed.

Settled in Full (SIF) Letter

A letter from your creditor explaining that your debt is closed, that the creditor accepted less than the full amount you owed, and that the balance was forgiven.

Settlement

A settlement is an arrangement negotiated with a creditor that agrees to accept less than you owe as payment in full.

Settlement Authorization

Settlement authorization is a process that helps protect all parties involved in debt relief by establishing clear boundaries for negotiations and ensuring that any agreements reached are legally binding.

Simple Interest

Simple interest is a method of calculating interest based on the amount borrowed, the interest rate, and the repayment period.

Soft Inquiry

A soft inquiry, sometimes called a soft credit check or a soft pull, is a type of credit check that doesn't impact your credit score.

Statute of Limitations for Debt

The statute of limitations is the length of time a creditor or debt collector has to sue you for debt repayment.

Structured Settlement

An agreement between you and a creditor to pay the settlement amount in a series of installments over time.

Student Loan

A student loan is money borrowed to help cover the cost of education.

T

Taxable

Taxable is the term for transactions subject to government-imposed taxes.

Term

In lending, a term is the amount of time you have to repay a loan.

Terms

The terms and conditions for financial accounts and products are the rules and obligations that apply to the lender or creditor and the consumer.

U

Underwriting

Underwriting is the process lenders use to decide whether to approve borrowers for loans.

Unsecured Loan

An unsecured loan doesn't require collateral that the lender could take and sell if you don't make your payments as agreed.

Upfront Fee

An upfront fee is a full or partial charge for goods or services that you pay in advance.

V

VantageScore

VantageScore is a credit score model developed by Equifax, Experian, and TransUnion.

Variable Expense

Variable expenses are costs that typically change monthly based on consumption, inflation, or other external conditions.

Variable Interest Rate

An interest rate that can change over time, depending on what’s happening in the broader economy.

W

Wages

Wages are the compensation you receive for work or services rendered.

Wants

Wants are goods and services you'd enjoy having but aren't essential for your basic functioning.

Z

Zombie Debt

Zombie debt is old debt that may not be collectible because the statute of limitations has passed, or because it doesn't belong to the person being contacted.