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https://www.debt.org/glossary/
Accessed 2/23/2018
Debt Glossary
Navigating the process of student loans, loan consolidation and debt settlement can be tough,
but what if you don’t understand the terminology to begin grasping the concepts?
Here is a comprehensive glossary of common terms you’ll find when reading about these
processes on our website or any financial paperwork.
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.
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.
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.
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.
Consumer debt: Money owed by consumers, rather than businesses or the government.
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.
From https://www.debt.org/glossary/
Accessed 2/23/2018
Deduction: An amount that is subtracted, usually from gross income to reduce income subject
to taxes.
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.
From https://www.debt.org/glossary/
Accessed 2/23/2018
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.
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.
Equity: Various meanings, but in terms of finances, it’s ownership in an asset after debts
related to that asset are paid off.
Escrow: Financial instruments such as a property deed kept by a third party until a specific
condition defined by the documents is fulfilled.
Free Application for Federal Student Aid (FAFSA): A form to determine the type of federal
student aid for which students are eligible.
Fair Credit Reporting Act (FCRA): Federal law that promotes accuracy, fairness and privacy,
and enables customers to view their own credit reports and dispute errors.
Fair Debt Collection Practices Act (FDCPA): Federal consumer protection law that prevents
abusive debt collection practices.
Fair Market Value (FMV): Price an asset would garner if sold in the open market.
From https://www.debt.org/glossary/
Accessed 2/23/2018
Federal Family Education Program (FFEL): Defunct higher education loans program funded
through private partnerships administered at the state and local level.
Federal Trade Commission (FTC): Agency that protects consumer rights and enforces
consumer protection laws.
FICO score: A type of credit score created by the Fair Isaac Corporation that ranges between
300 and 850.
Fixed-rate interest: Percentage will not change for the life of the loan.
Forbearance: A temporary postponement granted by the lender when borrower cannot make
payments because of financial hardship. Interest accrues and is added to the overall amount
owed.
Grace period: Period of time between graduation or leaving full-time college enrollment and
making the first payment on a student loan.
Health Savings Account (HSA): Medical savings account with tax benefits for people who
participate in a high-deductible health plan.
Home Affordable Modification Program (HAMP): A federal program created in 2009 that
assists eligible homeowners to modify the loans on their home mortgage.
Home equity: The difference between the market value of a home and the outstanding
mortgage balance.
Home Equity Line of Credit (HELOC): A type of secondary financing that consists of a
revolving line of credit.
From https://www.debt.org/glossary/
Accessed 2/23/2018
Home equity loan: Secondary financing secured by equity in the borrower’s home.
Internal Revenue Services (IRS): Federal government agency responsible for tax regulation.
Individual Retirement Account (IRA): Allows taxpayers to direct pre-tax income into a
retirement account. Distributions are treated as normal income and are subject to income taxes.
Lien: A lender or creditor’s right to secure a debt against the property of a borrower. If
obligations are not met, property may be sold.
Liquidation: Converting assets into cash, typically to settle debts with creditors.
Loan forgiveness: Writing off all or part of a federal student loan balance when borrower meets
certain criteria like a career in an eligible field such as teaching, law enforcement and others.
Master Promissory Note: Signed legal document that holds terms and conditions of a loan.
Open-end credit: Pre-approved loans made on a continuous basis, rather than at one time. It is
also known as revolving credit.
Paid in full: A status on a credit report that shows debts as paid, rather than reduced or settled.
Personal loan: A type of unsecured loan, meaning not tied to any property, for personal use
and typically based on creditworthiness and other factors.
Power of Attorney: Legal document that allows one person to make decisions, including
financial ones, on behalf of another individual.
Prime rate: A low interest rate offered to the most creditworthy borrowers.
Principal: The amount borrowed, not including capitalized fees and interest.
Private sector: A for-profit businesses owned by private individuals or groups, rather than the
government.
Refinancing: Replacing an old loan with a new loan at a different interest rate by the same
individual.
Repossession: Act of a creditor seizing property to make up for a borrower’s failure to pay on a
loan.
Short sale: Selling property or security when the recovered money is less than the amount
owed.
Social Security Administration: The tax-funded federal program which offers retirement
benefits and other programs.
Subsidized loan: A type of need-based loan for which the government pays the interest while
the borrower is in school and during the grace deferment periods.
Tax lien: If taxes are unpaid for a period of time, a lender may claim the borrower’s property
equal to the delinquent taxes.
Term: Period of time between the initial procurement of the loan and the time the loan is to be
paid back in full.
Unsubsidized loan: A type of loan for which the government doesn’t pay the interest. Borrower
is responsible for interest at the moment funds are disbursed.
Veteran: In financial aid terms, it’s a former member of the U.S. armed forces who served on
active duty and was not dishonorably discharged.
W-2 form: Employers issue this IRS form that lists an employee’s wages and tax withheld.