GLOSSARY OF CREDIT TERMS/DEBT EDUCATION
     
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GLOSSARY

Glossary of Credit Terms

 Annual Percentage Rate
(APR) -- The cost of credit as a yearly rate.

 Appraisal Fee
The charge for estimating the value of property offered as security.

 Asset
Property that can be used to repay debt, such as stocks and bonds or a car.

 Automated
Teller Machines (ATMs) -- Electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or other transactions as they would through a bank teller.

 Balloon Payment
A large extra payment that may be charged at the end of a loan or lease.

 Billing Error
Any mistake in your monthly statement as defined by the

 Business Days
Check with your institution to find out what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts.

 Collateral
Property offered to support a loan and subject to seizure if you default.

 Co-signer
Another person who signs your loan and assumes equal responsibility for it.

 Credit
The right granted by a creditor to pay in the future in order to buy or borrow in the present; a sum of money due a person or business.

 Credit Bureau
An agency that keeps your credit record.

 Credit Card
Any card, plate, or coupon book used from time to time or over and over again to borrow money or buy goods or services on credit.

 Credit History
The record of how you've borrowed and repaid debts.

 Creditor
A person or business from whom you borrow or to whom you owe money.

 Credit-related Insurance
Health, life, or accident insurance designed to pay the outstanding balance of debt.

 Credit Scoring System
A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.

 Creditworthiness
Past and future ability to repay debts.

 Debit Card
(EFT Card) -- A plastic card, looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.

 Default
Failure to repay a loan or otherwise meet the terms of your credit agreement.

 Disclosures
Information that must be given to consumers about their financial dealings.

 Elderly Applicant
As defined in the Equal Credit Opportunity Act, a person 62 or older.

 Electronic Fund Transfer
(EFT) Systems -- A variety of systems and technologies for transferring funds electronically rather than by check.

 Finance Charge
The total dollar amount credit will cost.

 Home Equity Line of Credit
A form of open open-endend credit in which the home serves as collateral.

 Joint Account
A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

 Late Payment
A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

 Lessee
A person who signs a lease to get temporary use of property.

 Lessor
A company that provides temporary use of property usually in return for periodic payment.

 Liability on an Account
Legal responsibility to repay debt.

 Open-End Credit
A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

 Open-End Lease
A lease which may involve a balloon payment based on the value of the property when it is returned.

Overdraft Checking
A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.

 Point-of-Sale
(POS) -- A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.

 Points and Origination Fees
Points are finance charges paid at the beginning of a mortgage in addition to monthly interest. One point equals one percent of the loan amount. An origination fee covers the lender's work in preparing your mortgage loan.

 Punitive Damages
Damages awarded by a court above actual damages as punishment for a violation of law.

 Rescission
The cancellation or "unwinding" of a contract.

Security
Property pledged to the creditor in case of a default on a loan; see collateral.

 Security Interest
The creditor's right to take property or a portion of property offered as security.

 Service Charge
A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

 Debt Education Center

Welcome to our Debt Education Center. Here you can find information regarding debt, debt management, and getting debt help. This information is provided free of charge, just as many of the services we offer to our consumers and the online community. One of our priorities is to provide educational information about debt and related topics. We hope that the following pages provide the information that you need to reach your financial goals.

Debt - This section offers an in-depth analysis of debt and how it has become more than an "obligation." Americans have become dependent on debt to the point that national and consumer debt are at excessive levels. Learn how debt has become a part of the American lifestyle and how Americans are struggling with the "keeping up with the Jones'"mentality.

Understanding Debt - This page emphasizes the importance of understanding debt and how it can enhance your financial power. By definition, debt is an obligation to pay, and a product of using credit. As a result, debt is often misconstrued as bad. Learn how debt has the potential to generate wealth, and understand the difference between constructive and destructive debt. By understanding debt and the terms associated with it, you will be able to become a powerful borrower and gain the greatest return on your investment.

Dealing With Debt - This page offers a means to effectively deal with debt. The manner in which you deal with debt will impact your credit rating, your finances, and most importantly your emotional state of mind. Knowing your risk tolerance and ways to deal with debt can help improve financial stability for years to come. Learn how to take on an amount of debt that you can emotionally afford and comfortably handle.

Overindebtedness - This page defines the term overindebtedness, and discusses its causes. Overindebtedness is often deemed a "disease" because there is a growing epidemic of individuals who experience overwhelming amounts of debt. Overindebtedness can possibly cause serious health issues particularly to mental and physical health. Learn more about the two major contributors of overindebtedness: financial hardships and psychological issues.

Consolidate Debt - This page focuses on the importance of consolidating debt and how consolidating debt is the most conservative approach to eliminating your debt and maintaining your ability to borrow money. Consolidating debt is essential if you are burdened with debt and wish to obtain financial freedom. Using a Certified Credit Counselor and a debt management plan can help you eliminate your debt successfully. Learn why consolidating debt is more advantageous than filing bankruptcy or using a home equity loan to pay off your debts.

Recognizing A Debt Problem - This section helps you to determine whether you have a potential debt problem. Ignoring a debt problem or failure to recognize a debt problem can result in grave consequences. Here you will find some signs that may be indicative of a debt problem.

Dealing With Collection Agencies - A debtor's worst nightmare is having to deal with collection phone calls. This page provides useful tactics and preventative measures when having to deal with a collection agency. Here you will find resources and tips designed to assist you when speaking to debt collectors.

Debt Help - Getting out of debt can be accomplished many ways, therefore, the manner in which you choose to eliminate your debt should be thoughtfully deduced. No matter how much debt you have, we can assist you in deciding the most appropriate way to become debt free. Learn more about the following services: debt consolidation services, debt counseling services, debt consolidation loans, debt elimination plans, and debt settlement plans.

Debt Counseling Services - Debt counseling services help you to effectively manage your debt. This page offers a thorough overview of debt counseling services and how they have the potential to help you become debt free.

Debt Consolidation Loans - Learn about the advantages and disadvantages of debt consolidation loans as well as alternatives to using debt consolidation loans to consolidate your debt. Debt consolidation loans are not recommended because they are usually secured, meaning that if you default, you are at risk of losing your collateral. The types of debt consolidation loans that are unsecured have very high interest rates which will result in you paying a great deal of money toward interest. Furthermore, debt consolidation loan companies often use your first month's payment to cover their costs and they use the second month's payment for closing costs. This will negatively impact your credit score.

Debt Settlement - Debt settlement negotiates payment terms to help you settle your debt. Although debt settlement drastically reduces the amount of debt you owe, debt settlement will negatively affect your credit score and cause financial hardships. There are other preferred alternatives to debt settlement such as debt consolidation. Continue reading to learn more about debt settlements.

Debt Elimination - Debt elimination is comprised of three different procedures: debt elimination scams, debt elimination plans and debt elimination negotiations. This page provides information about how debt elimination services work to eliminate your debt. Continue reading to learn more about debt elimination services.

Debt Consolidation Company - Many companies advertise as a "debt consolidation company, " however, they are not always providing the type of debt consolidation services that you wish to use. This page provides an overview of the services that debt consolidation companies provide. It is imperative that you know all your options and consult with a Certified Credit Counselor to discuss your financial situation and develop a strategic approach to relieving your debt.

Debt Management - There are many methods used to help debtors manage their debt. Debt management is a process that requires that you address your debt situation and effectively manage your finances. From there, you can utilize debt management services such as budgeting, debt stacking, and debt management plans.

Debt Management Plans - Debt management plans are designed to eliminate your debt over the course of several months. This page expounds on the benefits and drawbacks involved with debt management plans. Debt management plans are designed to consolidate your debt into one monthly payment. Through these repayment plans, you will be able to take control of your debt and build creditworthiness. In order to get the best services available, choose a good debt management company to manage your debt.

Debt To Income Ratio - Learn how to calculate your debt to income ratio, and see how this figure plays an integral role in a lender's decision as to whether or not to lend you credit.

Debtor Responsibility - As a credit consumer, you take a certain degree of responsibility. Each debtor is expected to fulfill his obligations. Your main responsibilities as a debtor include paying bills on time, contacting creditors and keeping records of correspondence


Debt

Debt is an obligation to repay money that has been borrowed, or pay for products and services provided on credit. There are two different types of debt that are ordinarily studied: National debt and Consumer or "Personal" debt. Most publications discussing debt are referring to National debt. This phenomenon occurs because most countries do not have a consumer debt problem. However, the citizens of developed countries such as the United States and the United Kingdom tend to overuse consumer credit, thus creating circumstances that lead to excessive amounts of personal debt.

Borrowing money allows many of us to manage our earnings and buy the things that we want now. This, combined with other lifestyle considerations, is a primary reason that people choose to take on debt. Emergency situations that necessitate the spending of unearned money are another reason that people take on debt. Regardless of the catalyst, credit can be misused to purchase things that we cannot afford.

Debt And Lifestyle Issues

Everyone has heard the phrase "Keeping up with the Jones'." This phrase refers to a practice that has been engrained in our culture even before the coined comic strip was introduced in 1914. Generations of Americans have enforced the idea that people with the greatest outward appearance of wealth deserve the most respect. For this reason, many Americans strive to earn respect by having the most expensive material possessions.

This social phenomenon encourages many of us to live beyond our means. We often fall into a trap of overspending due to high credit card limits and our need to "keep up with the Jones'." Credit card companies make this process easy for consumers because they earn the vast majority of their money from interest charges. In order to make more money, they lend more money.

In the past, a family needed superior earning power or inherited wealth to command the respect of its peers by exhibiting their financial prowess. However, in today's society, consumer credit allows individuals with inferior earnings but reasonably good credit the ability to purchase items that they could not otherwise afford. These habits constitute overspending which leads to overindebtedness.

Debt Through Calamity

Natural disasters, personal calamity, and lending credit to family members force many individuals into unexpected debt. Thousands are affected by floods, fires, tornados and earthquakes. Many face medical problems, unexpected tax burdens, and legal issues that cause undue financial burden. Even lending your credit to family members to help them get the things that they need can cause financial atrocities. Without financial protection through sufficient amounts of insurance, bills can pile up, and debt can snowball quickly.

While the individuals who encounter these problems are guilty of nothing more than poor planning or an inability to afford the proper insurance protection, the consequences are very real. Any unforeseen emergency can cause a great strain on a family's finances. These situations usually cause people to incur a debt because there is no other alternative.

Understanding Debt

Understanding debt empowers you to use debt to your advantage. Understanding debt begins with the knowledge that individuals and groups of individuals lend money. If you know lenders and know how they operate, you can manipulate situations to your advantage. Begin by knowing and befriending your local bankers, mortgage brokers, and other people involved in the lending process. These people know which rules can either bend or be ignored and which ones can be ignored altogether. Lenders are the key to receiving favorable treatment.

Personal relationships with your creditors can help to prevent problems before they start. Particularly in small communities, the local banker is privy to information about most of the bank's business. He or she can inform you when a problem is brewing or when an opportunity arises, allowing you to take advantage of the opportunity or correct a situation before it becomes detrimental. If you are approaching a debt problem, that extra time can help you to more effectively deal with debt.

Once you know the people who control the "purse strings," you will be able to learn from them. The financial professionals often know the intricacies of the programs that they offer, and they know where to find more information. Once you have built a basic yet thorough understanding of debt and the ways that debt can be used to finance growing wealth, you should be able to discern whether the financial professionals that you have met are the right ones to manage your financial affairs. If they are not, you should be well-equipped to find the right people. Then, trust the team that you select. Remember that it is their job to service your accounts and earn money for you.

Debtor Responsibility

The term debtor, although usually associated with a negative connotation, is merely a responsibility to repay a debt. According to Merriam-Webster, "a debtor is 'one guilty of neglect or violation of duty or anyone who owes debt'". Anyone who uses consumer credit is a debtor, and the first, if not most important responsibility that, if ignored, can have negative consequences. As a credit consumer you take on a repayment responsibility that, if ignored, can have negative circumstances.

Pay Your Bills On Time

When you use consumer credit it is always your responsibility to both monitor the amount of debt you owe and make payments on a regular basis. Occasionally, for any variety of reasons, be it misplaced correspondence, the irresponsible behavior of a roommate or significant other, change of residence, you may not be able to locate your credit card statement. However, due to your obligations as a consumer of credit, you must be responsible enough to know when your payments are due, and ensure that they arrive on time. If you are unable to locate a bill, you must contact your credit card company to speak with a representative. Most credit card companies have toll free telephone numbers and are open twenty-four hours a day to assist you with your account. If you are not sure whether you have paid your bill, or you are not sure what your monthly obligation is, then you must call your company to find out how much money you owe and when it is due.

Contact Your Creditors

Whenever you have a question or problem with a bill or you anticipate an inability to pay your bill on time, you must contact your creditor as soon as the question or problem becomes apparent. In most cases, creditors have customer support representatives with an arsenal of solutions ready to deploy for common situations. If your situation is unique, a customer relations manager should be able to help you find or create a solution to the problem. Keep in mind these solutions will not instantaneously go into effect. You must inform the creditor well in advance of your situation becoming a problem, to give the creditor time to implement an effective solution. Once you have contacted your creditor, make note of your conversation and the outcome.

Keep Records Of Your Correspondence

Every time you speak to a representative of one of your creditors, keep track of the time and date of the conversation, the name and I.D. or direct extension of the representative with whom you spoke, and the outcome of the telephone call. If the representative logs the call or opens a trouble ticket, get the ticket number. This information could be helpful if you contact your creditor again regarding the same or a similar issue. It is most important to record this information in situations where a company representative offers to make special efforts to assist you. Recording this information allows you to ask for this individual to help with issues in the future, or praise the individual to his or her superiors. Each record of a conversation also lends credibility to your arguments when you face difficulty solving a problem with a creditor. A few notes about a conversation imply that you are organized, honest, and detail oriented.

Similarly, you should store any written correspondence, including bills, for at least one year. Make note of when you paid each bill, the method that you used, and the check number where appropriate. Also make sure that your funds are properly distributed to the creditor. Checks get lost and people make mistakes. If you verify that your payments are credited in a timely manner, you will prevent headache in the future.

Using Home Equity To Consolidate Debt

Home equity loans let you consolidate debt using your home as collateral. When you responsibly consolidate debt using home equity, you can borrow more money at a lower interest rate and deduct the interest from your taxes. However, this is not the most conservative approach to consolidating debt. If you default on your payments, your lender could foreclose on your home. Also, tapping into your home equity increases the possibility that you will owe more than your home's market value. Such a situation could make selling your home nearly impossible. Plus, many of those who consolidate debt using home equity end up using their paid-off credit cards to accumulate greater debt.


 

 

 

 


 

 

 

 


 


 
 
   
 

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