Financial Term Glossary
A
Accounts Receivable
- Accounts receivable are payments or money owed to a bank, business, or creditor.
Amortization
- Amortization on a loan, also called loan amortization, is a way of showing how much of each loan payment is applied to interest versus the principal balance.
Amortization Schedule
- An amortization schedule is a table that breaks down how much of your monthly payment goes toward repaying the principal balance, how much goes toward interest, and your remaining balance each month.
Annual Percentage Rate (APR)
- An annual percentage rate (APR) is your total cost of borrowing money each year (including interest and other charges) expressed as a percentage.
Asset
- An asset is anything you own or own an interest in that has value.
Automatic Debit
- An automatic debit is when money is taken out of your bank account, with your permission, automatically. You authorize automatic debits in advance, but then they happen without any additional steps.
Automatic Stay
- An automatic stay is a court order that goes into effect immediately after you file for bankruptcy that prevents most creditors from pursuing collections while your case is pending.
B
Bank Account Levy
- A bank account levy is when a creditor takes money from your bank account to cover unpaid debt.
Bankruptcy
- Bankruptcy is legal protection from your creditors. It’s an option for managing your debt with help from the court system.
Bankruptcy Judge
- A bankruptcy judge decides on all important aspects of a bankruptcy case.
Bankruptcy Means Test
- Courts use a bankruptcy means test to determine whether you're eligible to file for Chapter 7 or Chapter 13 bankruptcy. The means test tells the court whether you can afford (you have the means) to make a monthly payment.
Bankruptcy Trustee
- A bankruptcy trustee plays a key role in checking, administering, and monitoring every bankruptcy case.
Budget
- A budget is a spending plan based on your income. Your budget helps you plan and track your spending, usually on a monthly basis.
C
Cease-and-Desist Letter
- A cease-and-desist letter is a legally binding request for a debt collector to stop contacting you.
Chapter 13 Bankruptcy
- Chapter 13 bankruptcy is a court process that allows you to make payments on your debts for three or five years before some or all of your remaining debt is erased.
Charge-Off
- Charge-off is a word used by banks, lenders, and creditors to describe loans or credit accounts that aren't being paid and so are written off as a loss.
Co-Signer
- A co-signer agrees to be legally responsible for another person’s debt and make payments if the primary borrower doesn’t.
Collateral
- Collateral is something of value that serves as a guarantee that you’ll repay a loan. Collateral is a requirement for certain kinds of loans.
Collection Agency
- A collection agency is a company that earns money by getting people to pay overdue debts.
Credit Bureau
- A credit bureau is an agency that uses your borrowing and repayment history to compile a credit report.
Credit Card
- A credit card is a payment card that lets you buy now and pay for your purchases later.
Credit Freeze
- A credit freeze locks your credit so it can’t be used to open new accounts—it’s most often done to keep your credit safe from identity theft or fraud.
Credit Repair
- Credit repair is the process of improving your credit history and score by removing errors and inaccuracies from your credit report.
Credit Report
- A credit report is a comprehensive history of your use of credit accounts. Your credit report could be used in a variety of business decisions about you.
Credit Score
- A credit score is a number that indicates how likely you are to repay a debt based on your credit and borrowing history.
Credit Utilization Ratio
- Credit utilization ratio is the amount of credit you use versus the amount of credit you have available, and it's an important factor in your credit scores.
Creditor
- A creditor extends credit to another party, usually in the form of a loan or a line of credit, with the expectation of repayment.
Creditor Harassment
- Creditor harassment refers to abusive, unfair, or deceptive practices by creditors or debt collectors trying to collect a debt.
Creditworthy
- Creditworthy is how lenders describe whether a potential borrower is suitable to receive financial credit.
D
Debit Card
- A debit card is a payment card that’s connected to a bank account that draws from its balance.
Debt Collector - Freedom Debt Relief
- A debt collector chases up payments on unpaid debts.
Debt Consolidation
- Debt consolidation involves repaying multiple existing debts with one new loan. This strategy could simplify the repayment process and potentially make the debt more affordable.
Debt Defense
- Debt defense is a legal strategy used to protect your rights when you're sued by a creditor or debt collector.
Debt Elimination Program
- A debt elimination program is a structured plan to help reduce or get rid of debt.
Debt Forgiveness
- Debt forgiveness is possible if your creditor agrees to accept less than the amount you owe but consider it payment in full.
Debt Forgiveness Tax Implications
- Debt forgiveness tax implications are potential financial consequences on your tax bill if your debt is forgiven or settled.
Debt Management Plan
- A debt management plan (DMP) is a payment plan for a debtor, set up by a nonprofit credit counseling agency and the creditors that are owed money.
Debt Moratorium
- A debt moratorium is a temporary payment pause or delay, for borrowers facing financial hardship.
Debt Negotiations
- Debt negotiations are a process of talking with creditors to try to persuade them to reduce, eliminate, or redefine the terms of debt.
Debt Protection Plan
- A debt protection plan, also sometimes called debt protection insurance, is a financial product to help you manage your debts after a covered event, such as job loss, disability, or death.
Debt Relief
- Debt relief is any action that relieves some of the burden and stress of debt. Debt relief could include reorganizing your debts, getting debt forgiven, or getting help managing your debts.
Debt Relief Scam
- A debt relief scam is a scheme where a company or individual targets someone struggling with debt. They make unrealistic promises that are too good to be true, such as that they can settle your debts for pennies on the dollar. They fail to deliver on these promises, but not before they charge their victims high fees.
Debt Settlement
- Debt settlement is the process of negotiating with a creditor or debt collector to clear a debt for less than what is owed.
Debt Snowball
- The debt snowball method is a debt payment strategy that suggests you pay debts in order of smallest to largest.
Debt Validation
- Debt validation is when a debt collector provides information that proves a debt belongs to the person from whom they are trying to collect.
Debt Validation Notice
- A debt validation notice (also known as a debt validation letter) is an official communication that debt collectors are legally required to send you. It gives you the details about the debt being collected to help you understand whether the debt is actually yours, and gives you some information to dispute the debt if it isn’t yours.
Debt Verification Letter
- A debt verification 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.
Dedicated Account
- A dedicated account is an account that a professional debt settlement company sets up with a partner bank on your behalf. It’s a place where you can build up funds for making offers to your creditors. You own and control the account.
Default
- Default is when a consumer doesn't repay a debt they promised to repay.
Deferment
- Deferment is a period in which you don't have to make loan payments, typically associated with federal student loans.
Delinquent
- Delinquent means being behind on a debt payment.
Deposits
- Deposits are amounts of money that you deposit into an account that’s been set up for your debt settlement program. Deposits are an essential part of a debt settlement process, because they give you something to offer creditors in exchange for reducing the amount you owe.
Discharge
- Discharge means you are legally freed from the obligation to repay your debt, and creditors will no longer try to collect what you owe.
Dismissal
- A dismissal is a legal process by which a court ends a lawsuit or bankruptcy.
Dispute a Debt
- Disputing a debt means telling a creditor, debt collector, or credit bureau in writing that a debt account is incorrect. Common reasons for disputing a debt are that it has already been repaid or because it doesn't belong to you in the first place.
E
Economic Hardship Deferment
- An economic hardship deferment is a temporary pause on student loan payments for borrowers facing severe financial difficulties.
Emergency Fund
- An emergency fund is money you set aside to cover unexpected costs, like medical bills or car repairs.
Enrolled Debts
- Enrolled debts are debts that you include in your debt settlement program.
Exempt Property
- Exempt property is property you can keep in the course of a personal bankruptcy filing.
F
Federal Student Loans
- Federal student loans are a way for college students to borrow money from the federal government and make affordable payments for their education.
FICO® Score
- A FICO® Score is a three-digit credit score calculated using a scoring formula created by the Fair Isaac Corporation.
Finance Charge
- A finance charge is a fee the borrower pays to use credit.
Financial Emergency
- Financial emergencies are things that create an unexpected need for extra money.
Financial Hardship
- Financial hardship is an unplanned, unforeseen financial expense that hurts your finances, such as losing your job, going through a divorce, or a severe illness or injury.
Financial Recidivism
- Financial recidivism refers to the cycle of repeatedly falling back into debt after climbing out.
Fixed Interest Rate
- A fixed-interest rate doesn’t change over the life of a loan.
Forbearance
- Forbearance gives a borrower permission to temporarily pause payments or make smaller payments because of financial hardship.
Foreclosure
- Foreclosure is a legal process where a lender takes possession of a home or other property because the borrower defaulted on the loan.
G
Garnishment
- Garnishment is a court order directing your employer or bank to withhold a portion of your wages or benefits to pay off your debts.
Grace Period
- A grace period is a period of time in which you do not face any financial penalties or added costs for not making a payment that is due.
Grant
- A grant is money you’re given to cover a specific need.
H
Hard Inquiry
- A hard inquiry is a request to view your credit report from a lender or other company after you apply for credit.
I
Impulse Purchase
- An impulse purchase is an unplanned item you buy on a sudden whim, sometimes right before you check out.
Installment Loan
- An installment loan is a debt that’s paid back with regular, ongoing payments, or installments. The payments are typically for the same amount each month, for a number of months or years that’s specified when you first get the loan.
J
Judgment-Proof
- Being judgment-proof means that your available income, cash, and other assets are not enough to pay a court judgment against you, such as a judgment from a creditor’s lawsuit.
L
Large Expense
- A large expense is a cost above and beyond what you typically budget, like a medical bill or a home remodel.
Lender
- A lender is an individual, group, or institution that loans you money.
Liability
- Liability refers to the debts you are legally responsible for.
Lien
- A lien is a creditor’s legal claim to your property or assets if you don’t repay a debt.
M
Minimum Payment
- The minimum payment on a credit card is the bare minimum you must pay each month to keep your account in good standing and avoid late fees.
Mortgage
- A mortgage is a loan guaranteed by a home or other real estate.
N
Needs
- Needs are things you require to live and function. If you're in need, you don’t have the basic things you need to survive.
Negative Amortization
- Negative amortization is when your loan payments don’t cover interest.
Net Income
- Net income is a person’s earnings after all deductions, such as taxes, health insurance, and contributions to retirement plans. Net income is also called take-home pay.
Non-Dischargeable Debt
- Non-dischargeable debt is debt that you can't get rid of in a bankruptcy.
O
Original Creditor
- An original creditor is a company that gives you a loan or line of credit directly.
Out-of-Pocket Cost
- An out-of-pocket cost is any expense you cover with your own money, which may or may not be reimbursed.
Overdraft
- An overdraft is when the bank lets you withdraw more money than is present in your account, typically charging you for the privilege.
P
Personal Finance
- Personal finance is a term that describes the things you do to manage your money and assets, from making a budget to using credit to saving for the future.
Prepaid Card
- A prepaid card is a payment card that’s preloaded with money and isn’t connected to a bank account or line of credit.
Prepayment Penalty
- A prepayment penalty is a fee that some lenders charge for paying off a loan ahead of schedule.
Prequalification
- Prequalification means providing limited financial information before applying for credit to see if you meet the lender's guidelines.
Priority Claim
- In bankruptcy, a priority claim is unsecured debt that is given legal priority and repaid before other unsecured debt.
Private Student Loans
- A private student loan is a loan offered by private institutions, like banks and credit unions, to fund educational expenses such as tuition, books, and board.
S
Secured Credit Card
- A secured credit card is a type of credit card that requires cash as collateral.
Secured Loan
- A secured loan is a loan guaranteed by collateral (something valuable that the lender could sell if you fail to repay the debt).
Settled in Full (SIF) Letter
- The settled in full (SIF) letter is the document your creditor sends you that proves you’ve cleared your debt through debt settlement.
Settlement
- Debt settlement is the process of negotiating with creditors to reduce the amount you owe.
Settlement Authorization
- Settlement authorization is a step in the professional debt resolution process where you authorize a professional debt resolution to go forward with an agreement that they negotiated on your behalf. After you authorize a settlement, the payments will be automatically sent from your program account to the creditor until the agreement is satisfied.
Structured Settlement
- A structured settlement is an agreement to settle a debt in a series of payments.
T
V
VantageScore
- VantageScore is a credit score model developed by the three major credit bureaus.
Variable Interest Rate
- A variable interest rate can change over time due to overall fluctuations in the market.
Z
Zombie Debt
- Zombie debt is debt that you thought was dead or resolved that suddenly comes back to life when a debt collector contacts you.