Debt Glossary

Below are several definitions of terms used by the Debt Settlement industry.

Bankruptcy:  A legal process by which individuals and businesses can eliminate a portion or all of their debts under the protection and supervision of a court and the bankruptcy trustee.

Cash Out Refinancing:  Process of refinancing a mortgage for more than is owed so that the difference can be used for other purposes.

Consumer Credit:  Credit extended to individuals for personal or household use in the form of loans that are generally unsecured.

Consumer Debts:  Credit cards, loans, and other debts incurred by consumers.

Credit:  Money given to a borrower by a lender on condition of repayment over a certain length of time.

Credit Bureaus:  Agencies that collect credit information on consumers like the three major national credit bureaus Equifax, Experian and Trans Union.

Credit History:  The record or history of a person’s repayment of debts.

Credit Rating: A numerical score estimating a person’s ability to repay debts based on current and projected income and history of payment of past debts.

Credit Report:  A synopsis of an individual’s credit history and other pertinent financial information that lenders use to determine whether to approve a loan and which terms to set.

Credit Score: A number that calculates the likelihood of a person’s debt repayment by detailing their credit history.

Creditor:  A business or individual who owed money.

Debt Consolidation Loan:  A single loan that replaces multiple loans, often with a lower monthly payment and a longer repayment period.

Debt Settlement:  An agreement with creditors to settle debts for a lower amount than owed.

Debtor:  A person or business owing money.

Debt to Income Ratio: A ratio utilized by lenders to access a potential borrower’s financial health, calculated by dividing monthly debt by income.

Default:  A condition occurring when a debtor fails to fulfill the obligations set out in a loan or lease.

Equity: The amount of value in a home or other secured asset, usually the difference between what is owed on the asset and the sale value.

Loan Term:  The time allotted to repay a loan.

Principal:  The amount of the loan that is still owed.

Rate:  The percentage paid by a borrower for a loan.
 
Revolving Line of Credit:  A loan that extends a specific amount to a borrower allowing that amount to be borrowed again once it has been repaid.

Secured Debt or Secured Loan:  A loan that is backed by collateral in case of default, such as a car or home.

Statute of Limitations:  The period of time allowed for a lawsuit or proceeding to be filed.

Unsecured Debt or Unsecured Loan:  A loan that is not backed by collateral, including most credit cards.