Glossary

Bankruptcy: When a debtor who owes more than his or her assets relieves the debts by transferring his or her assets to a trustee and is relieved of the future obligation to repay unsecured debts.

Chapter 7: This is a type of bankruptcy in which a debtor's assets are liquidated to satisfy credit obligations, which are removed at the completion of bankruptcy.

Chapter 13: This type of bankruptcy allows a person to retain assets in exchange for making reduced payments in accordance to a trustee-approved plan.

Collateral: An item of value that guarantees payment of debt or may be collected in place of payment.

Collection Agency: A company hired by a creditor to collect a debt.

Credit Counseling Service: Companies that provide debt management plans and budget counseling, usually in return for fees. It is a program for reducing monthly payments, where a consumer is placed on a "Debt Management Plan" to repay their bills, frequently at a reduced interest rate.

Credit Score: A determination of the ability for a consumer to make payments on future loans, determined by analyzing their past and current performance, including payment history, debt level, debt utilization and other factors.

Debt Consolidation: A loan, provided to consolidate debts into one loan with one payment, typically shifting credit card debts to secured debt by refinancing a mortgage.

Debt Management Plan: A plan that helps consumers repay their debts and helps creditors collect the money owed them. Usually put together by a Credit Counseling Agency.

Debt Management Program: A program that consolidates your debts, often with no interest. You make one payment to the program, and it distributes the money to your creditors.

Debt Negotiation: Your creditors may agree to accept a lower amount as payment in full for the whole balance. This option should be reserved for people in danger of bankruptcy or foreclosure.

Debt to Income Ratio: A determinant of financial well-being arrived at by dividing monthly debt payments by income.

Debt Settlement: A program for reducing consumer debt to the lowest level, typically with a low monthly payment, while avoiding bankruptcy.

Fair Isaac and Company: Fair Isaac is the company responsible for creating the FICO score. This three digit score is created using information from your credit report and ranges from 300-850. The major credit bureaus use this score in evaluating your credit.

Gross Salary: Total amount of money earned before taxes and other deductions are subtracted.

Secured Debt: Debts linked to collateral. The collateral guarantees payment of the debit, or the creditor has a right to take the collateral. Secured debt is most commonly used when purchasing homes or cars.

Unsecured Debt: Debts with no collateral. Commonly used with credit cards, medical bills, student loans, personal loans or rent.