Glossary A-F

401(k): a retirement account an employer establishes for an employee to contribute pre-tax dollars into. Some plans include contribution matching from the employer. One benefit of a 401(k) is the worker defers taxes until the time of withdrawal.
A
Adjustable Rate Mortgage: a mortgage loan where the interest rate increases or decreases depending on certain factors. Typically, the initial period is two years before an adjustment in the rate.
Amortization: a periodic brake down of a loan. Amortization tables can show the decreasing of a loan's principal versus interest over a certain time period. This information is useful for accounting purposes.
Asset: something a person possesses that is of value. A car is an example of an asset.
B
Bad Credit: generally, a FICO score that is 620 or lower. Different lenders may have separate lending standards, but 620 is widely considered bad credit.
Bad Credit Debt Consolidation Loan: a loan that seeks to consolidate debt for people with low credit scores. Normally, the interest rates are high because the borrowers are at a greater risk to default on the loan.
Balloon Payment: a payment schedule at a certain point in a loan that consists of the remaining balance. Balloon payments are common in home loans and car loans.
Bank: a financial institution that holds funds, lends money, mediates financial transactions and issues notes. Each bank has its own financial best practices and will engage in financial matters as it sees fit within the governing laws.
Bankruptcy: a legal request by a consumer to absolve debt. The court, then, decides upon a repayment of debt and/or appoints a trustee to oversee the liquidation of assets to repay creditors.
Borrower: someone who borrows money from a lender such as a bank or other financial institution.
C
Car Title Loan: a loan in which the borrower uses their car as collateral to obtain funds.
Cash-out Refinance: The restructuring of a mortgage loan for a larger amount than the remaining sum. The difference is cashed out by the borrower. A popular method of paying off multiple debts, a cash-out refinance converts unsecured credit card debt into a secured loan using the debtor's real estate property as collateral.
Chapter 7: a form of bankruptcy in which most unsecured debt is discharged and personal property can be liquidated to repay creditors.
Chapter 13: a form of bankruptcy that protects most personal property from liquidation but establishes a repayment plan for the bulk of the debtor's original debt.
Collateral: anything used to back a loan which the lender can seize or liquidate to reclaim the value of the loan.
Consolidation Loan: a loan that consolidates multiple debts into one debt.
Consumer Credit Counseling Service: a program that provides counseling for consumers with large amounts of debt. Before a Chapter 13, a consumer must attend some form of credit counseling to see if there is another option besides bankruptcy.
Consumer: a person who buys a good or service
Consumer Credit: any loan or line of credit given to a consumer.
Credit Bureau: any agency that tracks historical data of consumers to allow creditors to accurately forecast the risk of a particular consumer.
Credit Card Debt Consolidation: using a credit card to consolidate debt. Typically, consumers use a credit card that has low or no interest to transfer balances with higher interest rates.
Credit Card: a form of revolving credit issued by a bank or financial institution for the purchase of goods or services. Credit cards, generally, are established with a certain limit and a minimum payment due each month towards the balance on the card.
Credit Counseling: any form of counseling specifically for the edification of a consumer concerning their credit and/or debt.
Credit History: historical data listing an individual consumer's use of credit including: payment history, types of credit, length of credit, balance owed and requests for more credit.
Credit Report: a compilation of data concerning a consumer's use of credit for the intended purpose of a creditor to evaluate a borrower's creditworthiness.
Credit Score: a number attributed to a consumer's credit indicating that consumer's creditworthiness
Credit Union: a group that issues loans to its members at a low interest rate.
Credit: an advance of funds to a borrower with trust that the borrower will repay the loaned amount.
D
Debt Consolidation Loan: a loan that combines multiple debts into one single debt, normally with a lower interest rate.
Debt Consolidation: the process of consolidating multiple debts into one debt that is more manageable for the consumer.
Debt Management: the process of managing one's debt with the aim of lowering interest rates or eliminating debt through a debt-relief method.
Debt Negotiation: when a consumer or their representative attempts to rework the terms of a loan by reducing the balance owed or the interest rate.
Debt Relief: any method or process that alleviates the amount of debt a consumer owes.
Debt Settlement: the process of mediating between a borrower and their creditor to settle a debt at a negotiate rate or balance. Consumer's use debt settlement companies to act on their behalf to lower their total balance due.
Debt-to-Income Ratio: the rate of debt you owe compared to your yearly income. This helps creditors determine your ability to repay a loan.
Debt: the amount a borrower owes their creditor plus the interest, fees or charges the creditor has added for the advancement of funds.
Debtor: one who owes a debt
Default: failure to repay a loan or the missing of a payment.
Delinquent Payment: a payment that has gone past due. Creditors look at the severity of a delinquency as 30 days, 60 days, 90 days and longer.
Discharge from Debt: when a court absolves the borrower from their debt, meaning the borrower no longer owes that creditor for the debt.
E
Equity: the difference between what is owed on a possession and what the market value is for the possession. For a home, if the homeowner owes $100,000 for their home but the market value is $150,000, the homeowner would have $50,000 worth of equity in their home.
Escrow: money or property placed in the custody of a third party until the fulfillment of a condition in a contract.
F
Federal Reserve System: the central bank of the United States composed of 12 member banks representing regions of the United States. The Federal Reserve dictates monetary policy for the United States. Its seven board members are appointed by the president and confirmed by the Senate; however, the Federal Reserve Bank was not established by the constitution and is not, therefore, a government agency.
Finance Institution: an organization that collects funds to hold and to reinvest.
Fixed Rate: an interest rate that stays constant throughout the life of a loan.
Foreclosure: legal proceedings brought against a homeowner by a lender to reclaim a mortgage because the borrower has missed payments or has stopped making payments altogether.