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A glossary of debt terminology

May 7, 2008

There are many terms used when it comes to debt, debt collections and debt relief.  Knowing what the various terms mean can help when you’re trying to get your finances back on track.

Here is a brief glossary of terms:

Credit Counseling — A session during which a certified counselor reviews your entire financial picture, helps you to establish a budget and to create a personalized action plan to help you reduce your debt.

Credit Report — A detail of your credit history that includes all credit accounts and any late payments or charge offs.

Credit (FICO) Score — A number, ranging between 300 and 850, that most lenders use as a measure of how credit worthy a borrower is. A credit score is calculated based on information contained in your credit report including your payment history, length of credit history, amounts owed, new credit and types of credit.

Debt Consolidation Loan — A single loan taken out in order to pay off other debts.

Debt Management Plan — A plan managed by a credit counseling agency in which the agency negotiates interest rates and payment amounts on behalf of the consumer. The consumer then makes one payment to the credit counseling agency, which in turn distributes the payments to the creditors.

Debt Settlement — When a creditor settles a debt amount with a borrower, but the settled debt must often be paid in one lump payment (ex. The creditor is willing to accept a settlement of $4,000 on a credit card with a $7,500 balance). Consumers who choose debt settlement may have to pay income tax on the forgiven debt amount. There may also be negative effects to your credit report and score.

Charge-off — This is an account that has been delinquent, usually for at least 180 days. After that time frame, the creditor reports the debt was “charged off.”

Installment Debt — This is debt where the consumers pays a set amount each month until the debt is paid off. An example of this would be a car loan.

Revolving Debt — Debt that can increase or decrease depending on payment amounts, interest rates and use of open credit. An example of revolving debt would be a credit card.

Secured Debt — This is debt that you have collateral to back up. A mortgage would be considered a secured debt because the creditor could confiscate the property if you do not pay the loan.

Unsecured Debt — This is debt you have incurred but have no assets to back it up. Credit card debt, personal loans or medical debt would be examples of unsecured debt.

Are there any other debt terms you hear on commercials or see while reading about finances that you’re curious about?  Just post a comment and ask!

Written by admin · Filed Under Debt, Credit Counseling 

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