Debt a Glossary of Terms
Darren Yates
Bankruptcy - Having been legally declared financially insolvent. There are
two types of bankruptcy - liquidation, in which your debts are cleared
(discharged) and reorganization, in which you provide the court with a plan
for how you intend to repay your debts.
Collateral - Property acceptable as security for a loan or other obligation.
Collection Agency - A company hired by a creditor to collect a debt that it
is owed.
Contract - An agreement between two or more parties, usually written down
and enforceable by law .
Cosigner - To endorse (another's signature), as a loan agreement, lease or
credit application. If the primary debtor does not pay, the cosigner is
fully responsible for the loan or debt.
Credit Bureau - An organization to which business firms apply for credit
information on prospective customers.
Credit Report -An account of your credit history, prepared by a credit
bureau. A credit report will contain credit history, such as what you owe to
whom and whether you make the payments on time, as well as personal history,
such as your former addresses, employment record and any lawsuits in which
you have been involved.
Creditor - A person or entity (such as a bank) to whom a debt is owed.
Debtor - A person or entity (such as a bank) who owes money.
Debt to Income Ratio - Most mortgage lenders use this ratio to analyze your
financial well-being. It is figured by using your monthly debt divided by
your monthly income. The lower the percentage the better your financial
picture. This is often referred to as credit worthiness.
Default - To fail to pay money when it is due. A default on a mortgage or
loan takes place when you fail to make the loan payments on time, fail to
maintain adequate insurance or violate some other provision of your
agreement with the mortgage / loan company.
Discharge (of debts) - A court's writing of off the debts of a person or
business that has filed for bankruptcy.
Dischargeable Debts - Debts that can be erased by going through bankruptcy.
Down Payment - A cash payment made by a buyer when they purchase a property.
Equity - An increase in the value of your home or decrease in the loan
amount on your home creates equity. Equity is the difference between what is
owed on your home and the sale value. Most home equity lenders will allow
you to borrow up to 80% of that value.
Fair Isaac and Company - Fair Isaac is the company responsible for creating
the popular FICO score. This three digit score is created using information
from your credit report and ranges from 300-850.
Foreclosure - The forced sale of property to pay off a loan on which the
owner of the property has defaulted.
Garnishment - A court order directing a third party who holds money or
property belonging to a defendant to withhold it and appear in court to
answer inquiries.
Grace Period - A period of time during which you are not required to make
payments on a debt.
Guarantor - A person who makes a legally binding promise to either pay
another person's debt or perform another person's duty if that person
defaults or fails to perform.
Interest - A commission you pay a bank or other creditor for lending you
money or extending you credit. Usually calculated as a percentage of the
mortgage or loan.
Lien - The right to take and hold or sell the property of a debtor as
security or payment for a debt or duty.
Loan Consolidation - The combining of a number of loans into a single new
loan. Usually done to gain more favourable terms e.g. lower cost repayments
or longer time to pay.
Principal - A sum of money owed as a debt, upon which interest is
calculated. If you purchased an item for $100 on your credit card that would
be the principal balance.
Repossession - A creditor's taking of property that has been pledged as
collateral for a loan.
Secured Debt - A debt on which a creditor has a lien. A car loan would be an
example of secured debt.
Term - The time required to repay a loan.
Unsecured Debt - A debt that is not tied to any item of property. Credit
card debt is an example of unsecured debt.
1st Finance Guide features help and advice on debt consolidation
http://debt.1stfinanceguide.com/debt amongst other general finance
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