Ask Jack About Debt

Consumer Debt and Credit Dictionary

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Amortization Table

These tables are created using a mathmetical formula that calculates the monthly payments on a mortgage. The information you must have to calculate the results are the interest rate, the total amount of the loan, and the term of the loan. There are many websites that offer these calculators as a free online tool to potential borrowers.


APR - Annual Percentage Rate

Lenders used to use different methods for calculating interest rates and that made it very hard for people to compare rates.  This method of calculation (commonly used by mortgage lenders) is dictated by the government.  When you compare one company’s APR to another, you are comparing apples to apples.  Never pay attention to any way of stating the rate.  Always ask for the APR.




Federal law offers two ways for people to manage their debt when it gets out of hand. Chapter 13 bankruptcy allows you to make a payment plan over time. The amount you pay will depend on your circumstances. Theoretically this plan is not much different from what consumer credit counseling agencies can do for you. Chapter seven bankruptcy allows you to eliminate all or most of your debt (some categories, like unpaid taxes are excluded). It is not available to people who earn more than a certain amount, which differs from area to area. To do this effectively you really need a lawyer who specializes in this area.



Collection agency

An organization that tries to collect money for others either for commission or on some sort of fee basis. They are regulated by the Fair debt Collections Practices Act, and there is much information here about how to deal (or not deal) with them.



This word is not used very often with personal loans and credit, but it refers to any assets you put up in order to get a "secured loan." Your house or your car might be collateral for a loan.



The agreement you signed to get a credit card or to borrow on your car or to mortgage your house is a contract and it is legally binding. Verbal agreements are also legal contracts but they are much harder to enforce unless you have credible witnesses.


Credit cards, regular and prepaid

A credit card allows you to borrow money from the issuer. That means: 1. You do not have to pay off the balance every month 2. The company will charge you interest.

In the case of prepaid credit cards you have to deposit the money BEFORE you spend it.

Credit cards offer far more protection under federal law than debit cards, checks or cash. If you use a credit card to buy something and there is a problem, you must follow the credit card company's instructions, and then they must suspend the amount under dispute and investigate your complaint. Within 30 days they must tell you what they found, or drop the charge from your bill. Also, if someone uses your card without permission, you are protected form collection efforts by the credit card company.


Credit Score

This is a number from 300 to 800 that is assigned to your name by the Credit Reporting Agencies, using formulas they have developed. The most common is the FICO score, which is used by almost all mortgage lenders. See the credit score section.



A person or organization to which you owe money. Collection agencies are not creditors (although they would like you to think they are) but they represent creditors. In my opinion you should never ever deal with a collection agency, but if you want to deal with any debts, work only with the original creditor.


Credit Reporting Agencies (CRA's)

These companies store and maintain consumer credit records. This information is used to develop a credit rating. If your credit rating is good you will have less trouble borrowing and pay lower interest rates. If it is bad you will have more trouble borrowing and pay higher interest rates. If it is lousy, you will be unable to borrow at all except on the black market. There are three major agencies in the United States, the Credit Agencies page shows the addresses and some of the regulations governing them.


Credit Repair

This is the activity of improving your credit rating and standing. I have a whole section devoted to do-it-yourself credit repair. CAUTION: I have no faith that commercial credit repair companies are ever worth the money. They usually make promises that cannot be kept. Sometimes they promise things - like setting you up with a separate identity - that are illegal. Be careful who you work with.



Debit Cards

These cards look like credit cards and may feel like credit cards, but they are very different. When you use a debit card the money is immediately take out of your checking account. It's gone. Unlike credit cards, debit cards offer no protection in the case of a problem purchase or a stolen card.



Money you owe to a company or some person. Loans are debts. Mortgages are debts. Everything you charge to a credit card is debt.


Debt Consolidation

This term is used in two different ways. One way is the practice of borrowing a lump sump, as in a home equity loan (which is simply a mortgage) to pay off all of your debts and then paying off that one loan over time. You are 'consolidating your consumer debt." If you do it this way you may lower your interest rate as you are often replacing an unsecured debt (like credit card debt) with as secured debt (mortgage) and secured debts usually have lower interest rates. However insofar as you stretch out the payments you may and up paying more total interest.

The other way to have debt consolidation is to use a firm that offers this service. They do not loan you money, but they claim that they can work with your unsecured creditors to package up your past borrowing into one lump sum, with no more interest payments or late payments. You then send them a single monthly payment and they distribute it to the creditors according to a pre-agreed schedule. They get paid a commission by the creditors for this debt consolidation and management service.

I do not trust most of these organizations to do what they say efficiently. I recommend only one, Consumer Credit Counseling Services. They are nationwide. You can get more information on them in our "credit counseling" section.


Debt Counseling

There are many companies who are in the business of creating a payment plan when you have gotten into trouble with your debt. They make arrangements with the creditors to take a certain amount per month, often canceling interest and late fees, and then you pay them a check every month, which covers all of the payments and gives them a fee for the service. Some of these companies are not very efficient and do not make the payments on time, negating the agreements with creditors and putting you back in the same situation you were in before you started. Some do not do a good job of getting concessions from the creditors. A few are outright frauds, in my opinion. I have had some experience with the national group called "Consumer Credit Counseling Agencies," and think them to be efficient and honest. Click here for more information on them and how to find an agency near you.


Due date

The date by which your payment must be received. Dropping it in the mail by that date does not satisfy the contract.



This is the practice of trying to collect a debt. Creditors dun debtors to get them to pay by asking them "consistently and repeatedly" to do so.




One of the three largest Credit Reporting Agencies (CRA's), also known as a Credit Bureau. See Credit Agencies for information on how to contact them.



One of the three largest Credit Reporting Agencies (CRA's), also known as a Credit Bureau. See Credit Agencies for information on how to contact them.



FICO scores

The credit score most frequently used by the CRA's. The name comes from the Fair Issaac Corporation, which developed the model.



The holder of the mortgage - usually a bank - takes the property and all rights to the property away from the debtor. This happens when the debtor has defaulted on the loan (you haven't made your payments) Typically the bank will sell the property to try and recoup their losses.



Grace Period

The time a creditor gives you to pay the amount due before charging interest, canceling the service or starting dunning procedures. The time between you get your credit card bill and the payment due date is a "grace period." Lately these times have been getting shorter and shorter.



Housing Court

Some states have special courts for landlord-tenant disputes. But all states regulate these in one court or another. In most states landlords and tenants have special responsibilities and rights. Make sure you know yours before you let yourself be treated irresponsibly.



Interest Rate

Companies that make a loan need to make a profit from the transaction. They do this by charging an amount over and above the principal of the loan (the amount you borrow). This is calculated with the interest rate, and it's a percentage of the total amount owed. The actual dollar amount that you'll pay is calculated from the remaining balance of the loan at regular intervals (usually monthly). Lenders can get tricky with interest rates, to confuse the borrower about the actual amount the loan will cost. Read about APR above, to find out more.




Kite Credit Card Balances

To “kite” credit card loan balances is to take a credit card debt and keep it moving between different credit cards by taking advantage competition in the credit card industry. A consumer will shift the balance of one card to a new card using the introductory offers recieved in the mail, and then canceling the old card. When the introductory offer runs out, the consumer simply transfers the balance again to a new card and a new offer. This keeps the interest paid to credit card companies low, but it takes some work.




A lease is a contract for “rent”—usually on an apartment or car. It is a debt and if you fail to meet your obligations under the lease you can be held responsible. Just bailing out of a lease without knowing your rights and responsibilities under your state law is not a good idea.




One of the best ways to stay out of court is to use mediation. You and the other party (for example the creditor) will talk with a neutral third party. The mediator will actively work to resolve the dispute between the two parties to mutual agreement, the final decision however, is non-binding. This option will save money on the legal fees (for both parties) that would typically come with a court date.



Negative Amortization

Also called "payment option" mortgages, this is a specific type of mortgage loan. In this case, the monthly payment on a mortgage does not cover the entire principal and interest due, creating a shortfall. This shortfall is then added to the remaining balance. Read more in Mortgage Types.

National Foundation for Credit Counseling (NFCC)

NFCC is a national nonprofit credit counseling network. NFCC Members help householders to deal with debt and manage finances. NFCC members, often known as Consumer Credit Counseling Service (CCCS) or other names, can be identified by the NFCC member seal. Read more about the NFCC and CCCS in Consumer Counseling.




Under the Fair Credit Reporting Act (FCRA), you are legally allowed to stop the Credit Reporting Agencies from renting your name and credit history to credit card or insurance companies seeking new customers.

Read more on Opting Out from pre-approved credit card offers on my blog

To Opt-Out, fill out the form on this site:



Pre-payment Penalty

If you sell your house or refinance during the penalty period written into the terms of your mortgage agreement, you will have to pay these penalties, which can be huge -- as much as tens of thousands of dollars over and above the mortgage balance. Read more about pre-payment penalties in Mortgage Terms.





The lendor will take back property from the borrower if payments are not made. For example, if you fail to make your payments on your car, the bank can take the car from you (repossess). In the case of a mortgage this is called foreclosure.



Secured Debt

This is money you owe that is "secured" by an asset. Usually the asset is a car or your home or some form of real estate (mortgages are secured by real estate). If you fail to pay the loan according to the terms you agreed to, the creditor has the right to seize the asset. These seizures are usually regulated by state law and must be done in a certain way (depending now at state you live in) but they can and will be done. Real estate seizures are called foreclosures and usually heavily regulated - at least when a residence is involved. You will usually get plenty of notice. Car seizures are called "repossessions" and are not so heavily regulated. You could wake up one morning and find your car gone.


Secured Loan

This type of loan is "secured" by an asset, usually a house (your mortgage is a secured loan) or a car. The creditor has the right to "foreclose" or "repossess" the asset if you do not make your payments. It almost never makes good sense to let it get that far. There are many ways to get help, some of them on this site, and you should always try to work things out - or sell the asset yourself. If the creditor sells it you will still owe the balance if the sale price is less than the balance on the loan.


Small Claims Court

Most states have them in one form or another. They allow you (or your creditor) to use the court system without paying a lawyer for small amounts of money (varying widely from state to state). If a creditor calls you into small claims court, show up. If you do not, they might win. If you do they might lose. Sometimes they call you to small claims court not intending to show up. Just one more harassment.



If you have a lease on an apartment or car, for example and then rent it to someone else, you have “subleased it” usually this requires the permission of the leaseholder.


Subprime Lenders or Loans

Some companies make loans to people whose credit ratings are below average. These are called "subprime" loans and the lenders are called "subprime" lenders. Interest rates are usually much higher than you will get from conventional lenders.



Tenant at Will

If you rent an apartment as a "tenant at will" either you or the landlord can end the agreement with a notice that is as long as the period of time between [payments. If you pay every week, only one-week notice is required. If you pay monthly, 3-0 days notice is needed.


Transaction User

Someone who pays off their whole credit card bill every month. There are many advantages to doing this, and if you can, do it. You will retain the other benefits of using a credit card and not have to pay the high interest rates.



Unsecured Debt

This is debt that is not "secured" by an asset like a car or home. By far the most common unsecured debt is credit card debt. This kind of debt is usually wiped out or significantly reduced by bankruptcy. Interest rates are higher on unsecured debt than they are on secured debt because if you default, the creditor has limited recourse. They cannot foreclose on your home or repossess your car. That means they are much less likely to get paid off.


Unsecured Loan

This type of loan (balances on credit cards are unsecured loans). They usually have higher rates because there is no security. If you default on one of these, there is no asset to be repossessed, but they can take you to court in an attempt to collect and in some cases, garnish your wages. On occasion they can even get a line on your house, which has to be paid when you sell or refinance.



Vulture Collectors

In these cases, old debt, long ago written off by the creditor, is sold for pennies on the dollar to a one of a group of small collection agencies, often part of law firms.





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