Financial Terms Glossary
Understanding financial terminology is the first step toward taking control of your debt. Browse our comprehensive glossary to learn about debt relief, credit, loans, and more financial concepts explained in simple terms.
A
Accrued Interest
Interest that builds up on a loan or credit balance before it is paid.
Amortization
The process of gradually paying off a loan through scheduled payments of principal and interest.
Annual Percentage Rate (APR)
The yearly cost of borrowing money, expressed as a percentage.
B
Bankruptcy
A legal process allowing individuals or businesses unable to repay debts to seek relief, typically through liquidation (Chapter 7) or repayment plans (Chapter 13).
Balance Transfer
Moving debt from one credit card to another, often with a lower interest rate.
Budgeting
Planning income and expenses to manage money and avoid unnecessary debt.
C
Charge-Off
When a creditor writes off a debt as unlikely to be collected, though the borrower still owes it.
Collateral
An asset pledged to secure a loan. If payments aren't made, the lender can seize the collateral.
Collection Agency
A company hired by creditors to collect unpaid debts.
Consolidation Loan
A new loan that combines multiple debts into one payment, often with lower interest.
Credit Counseling
Professional financial guidance to help manage debt, often through nonprofit agencies.
Credit Report
A record of a person's borrowing and repayment history, maintained by credit bureaus.
Credit Score
A three-digit number that reflects creditworthiness based on credit history.
D
Debt Avalanche
A repayment strategy that focuses on paying debts with the highest interest rate first.
Debt Consolidation
Combining multiple debts into a single payment, either through a loan or program.
Debt Management Plan (DMP)
A structured repayment program arranged by a credit counseling agency to lower interest rates and combine payments.
Debt Relief
Any method that reduces, restructures, or eliminates debt.
Debt Settlement
Negotiating with creditors to pay less than the full amount owed.
Default
Failure to make required debt payments on time.
Delinquency
Overdue debt that hasn't been paid by the due date.
E
Equity
The portion of a home or asset that you own outright, calculated as value minus debt.
Exempt Assets
Property protected from creditors during bankruptcy.
F
Fair Credit Reporting Act (FCRA)
A federal law that regulates how credit information is collected and shared.
Fair Debt Collection Practices Act (FDCPA)
A federal law that restricts abusive practices by debt collectors.
Foreclosure
When a lender repossesses a home after missed mortgage payments.
G
Garnishment
A legal order requiring part of a person's wages or bank funds to be taken to repay a debt.
Grace Period
The time after a due date when payment can be made without penalties or added interest.
H
Hard Inquiry
A credit check that can temporarily lower a credit score, usually for loan or credit applications.
Hardship Program
A temporary arrangement with a creditor to reduce or suspend payments due to financial difficulties.
I
Installment Loan
A loan repaid with fixed, regular payments (e.g., car loan, personal loan).
Interest Rate
The cost of borrowing money, expressed as a percentage of the loan amount.
J
Judgment
A court order requiring repayment of a debt, often after a creditor lawsuit.
Joint Account
A credit or loan account shared by two or more people, making all parties equally responsible.
L
Lien
A creditor's legal claim to a borrower's property until debt is paid.
Loan Modification
A permanent change to loan terms (e.g., lowering interest or extending repayment).
M
Minimum Payment
The smallest amount required to keep an account in good standing, often resulting in long-term debt if only paid monthly.
Mortgage Forbearance
Temporary pause or reduction of mortgage payments.
N
Net Income
Take-home pay after taxes and deductions.
Nonprofit Credit Counseling Agency
An organization offering free or low-cost debt help and repayment programs.
O
Overdraft
Spending more than what is available in a bank account, often leading to fees.
Origination Fee
A fee charged by lenders to process a loan.
P
Payday Loan
A short-term, high-interest loan typically due on the borrower's next payday.
Principal
The original amount borrowed, excluding interest and fees.
Private Student Loan
A loan for education provided by private lenders, not the government.
R
Refinancing
Replacing an old loan with a new one, usually for better terms.
Repossession
When a lender takes back property (like a car) due to missed payments.
Revolving Credit
Credit accounts (like credit cards) that allow borrowing up to a limit, repaying, and borrowing again.
S
Secured Debt
Debt backed by collateral (e.g., mortgage, auto loan).
Statute of Limitations
The time limit creditors have to sue for unpaid debt.
Student Loan Forgiveness
A program that cancels part or all of a borrower's student loan balance.
Subprime Loan
A loan offered to borrowers with poor credit, usually with high interest rates.
T
Title Loan
A high-interest, short-term loan that uses a vehicle title as collateral.
Trustee
A person appointed to oversee bankruptcy cases and repayment plans.
U
Unsecured Debt
Debt not backed by collateral (e.g., credit cards, medical bills).
Underwriting
The process lenders use to evaluate a borrower's risk before approving credit.
V
Variable Interest Rate
An interest rate that can change over time, often tied to market conditions.
Voluntary Surrender
When a borrower willingly returns collateral (like a car) to the lender to avoid repossession.
W
Wage Garnishment
A portion of wages taken directly from a paycheck to repay debt.
Write-Off
When a creditor declares a debt uncollectible, though collection efforts may continue.
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