Comprehensive glossary of common terms you’ll find when applying for student loans or doing loan consolidation, debt settlement, etc.
401(k) A type of employer-sponsored retirement account where employees may contribute a portion of their salary. Taxes are deferred until money is withdrawn. Certain programs match a percentage of employee contributions.
Adjusted Gross Family Income | The sum of your family’s wages, salary, interest, dividends, etc., minus certain deductions from income as reported on federal income tax return.
Adverse credit history | Record that shows negative actions in a credit report like bankruptcies, delinquent accounts and foreclosures.
Accrued interest | This interest builds on itself until a debt is completely paid off. It is determined by the unpaid balance of the original loan.
Alimony The court-ordered obligation to offer financial support following a separation or divorce.
Amortization Reduction value of an asset determined by prorating its cost over a certain amount of time.
Annual fee | Charged once a year to cover administrative costs and ensure credit benefits on credit cards.
Annual Percentage Rate (APR) | Amount shown as a percentage that represents yearly costs of borrowing over the term of the loan or credit card.
Arbitration Debt resolution using an impartial third party.
Asset An item of ownership that has exchange value.
Balance Amount available in an account. In terms of debt, the amount owed, not including payments already made.
Bankruptcy A legal procedure where the debtor’s assets are liquidated by the court to account for financial obligations. Although the debtor is able to start over, the negative action remains on the credit report for seven to 10 years.
Better Business Bureau | A private, nonprofit organization that promotes ethical marketplace practices and offers resources to both businesses and consumers.
Broker The person who negotiates transactions between buyers and sellers for real estate.
Capitalization Adding unpaid interest to the original amount borrowed.
Chapter 7 bankruptcy | The more common type of bankruptcy that allows debtors to liquidate debts.
Chapter 13 bankruptcy | Debts are reorganized and debtors can keep property.
Closed-end credit | Loan or credit line where the amount borrowed is dispersed when the loan closes. A set date is given for when the loan interest and charges must be paid.
Collateral Property or assets a borrower pledges to secure repayment of a loan. Collateral may be seized if the borrower fails to repay the loan.
Consolidation Combining monthly payments into one payment, often through a consolidation loan.
Consumer debt | Money owed by consumers, rather than businesses or the government.
Consumer Financial Protection Bureau | Independent federal organization created in 2011 that regulates consumer protection in regards to financial products and services.
Credit history | Record showing consumer’s borrowing and repaid debt.
Credit repair | Process of improving your credit score through actions like negotiating with creditors and disputing errors on your report.
Credit score | Number assigned by the credit bureaus that shows a consumer’s likelihood to pay back a debt. Lenders use these scores to determine risk of lending that person money.
Creditors Person or organization that lends money to consumers or businesses.
Creditworthiness A potential borrower’s ability to pay back credit.
Deduction An amount that is subtracted, usually from gross income to reduce income subject to taxes.
Debt Money owed by a borrower.
Debt-to-income ratio (DTI) | Measure that compares personal debt payments to personal income. A high ratio means borrower faces a greater burden repaying debts and difficulty accessing other financing options.
Debt consolidation | The combination of multiple debts into a single debt with one interest rate.
Debt Management Plan | A credit counselor negotiates interest rates with creditors to make an individually tailored plan to reduce the borrower’s unsecured debts over a certain period of time.
Debt settlement | Process of negotiating with one or more creditors to reduce the balances owed by debtors. It’s also known as debt resolution.
Debt specialist | Trained professionals who mediate with creditors to resolve contractual obligations.
Deed A written legal document showing transference and ownership of property. It includes the price, description of property and the signatures of involved parties.
Default The status of a loan that is not repaid according to the terms of the promissory note. Federal student loans enter default status if payment hasn’t been made in more than 270 days.
Deferment Period of time when loan payments (including principal and interest) are temporarily delayed.
Delinquency Loan or account status when a borrower misses payments as specified by the repayment period in the loan agreement.
Dependent Individual, usually a qualifying child, claimed by a taxpayer for credits or exemptions.
Direct loans | A batch of loans, including Stafford, Plus and consolidation loans, supported by the William D. Ford Federal Direct Loan Program that allows students and parents to borrow directly from the U.S. Department of Education.
Disbursement Loan funds paid out to borrower.
Discretionary income | Amount of individual’s income left for spending, investing or saving after taxes and essential goods like food, housing and clothing are paid. It also includes funds spent on luxury items and other non-essential goods.
Earned Income Credit (EIC) | This is a refundable income tax credit that assists low to moderate income working individuals and families.
Equifax One of the three credit bureaus.
Equity Various meanings, but in terms of finances, it’s ownership in an asset after debts related to that asset are paid off.
Experian One of the three major credit bureaus.
Escrow Financial instruments such as a property deed kept by a third party until a specific condition defined by the documents is fulfilled.