Debt Consolidation � Glossary of Terms

A.

Acceleration Clause � This allows the lender in a loan agreement to demand an early payment for certain reasons. This could include: defaulting on the loan, destruction of property, or the transfer of title.

Annual Percentage Rate (APR) � This is the cost of a loan as expressed as a yearly rate. The monthly interest rate simply is the APR divided by 12. All lenders and creditors are obligated to disclose the APR of the loan or credit to you.

Amortization � This simply means paying off your debt gradually in partial payments rather than in one lump sum.

Adjusted Balance � This is in case whereby there is a remaining balance on a debt after payments have been subtracted from the original balance. It does not include any interest or fees. A common lender�s practice is to allow the interest rate to be based on the adjusted amount instead of on the original amount. Arrears The state of a payment that has not been made on time. Unpaid debts are said to accumulate as such.

Additional Principal Payment � The additional money that is included in a monthly payment, above that what is necessary. It is typically applied to the outstanding balance which allows a debt to be paid off much quicker than anticipated.

Average Daily Balance � The amount of money computed by determining how much is owed on a debt for an average day during a particular billing period. This is the method which almost all banks and credit card companies use to determine interest that is due.

B.

Billing Cycle � Simply the amount of time between billing statement dates. This varies by company, however typically is in the 20 -30 day range.

Buydown � A buydown simply means lowering of the interest rate and/or monthly payments on debt due to a substantial additional payment while the debt is new. In other words, borrowers �buy� better rates. This is usually done in the purchase of a home.

Bankruptcy � A legal last option for those gravely in debt without other financial alternatives. Nationwide Debt Reduction suggests you at least talk to one of our debt reduction professionals before considering this option. Although more difficult to qualify for, a bankruptcy discharges debts or reduce them within the context of a realistic payment plan.

Bad Credit � Self�explanatory, however is the status of someone whom the creditors or lenders would consider a high risk when deciding on whether or not to loan money. There are numerous variables that could lead up to being a credit risk to lenders.

C.

Credit Line � The total amount of revolving credit that may be borrowed either partially or in full against an account.

Credit Score � A credit or FICO score between 300 and 900 that helps lenders and/or creditors determine one�s creditworthiness. The score is based on many variables including your ability to pay back your debt in a timely fashion. The higher the score the better one is seen a credit worthy by the lenders.

Collateral � This is secured property, such as an automobile or a house that is used as security for the repayment of a loan

Credit Bureau � The three main credit bureau agencies are Experian, Equifax, and TransUnion. These companies record consumer credit history as well provide credit reports and credit scores to consumers.

Credit Report � A report that records the credit history of a particular business or individual. See �Credit Bureau.�

Charge-off � This is when a debt is considered uncollectible and is removed from active accounts. If you are in a debt relief program, many of your accounts could end up in a charge off status. Payments on charged off accounts:

1. May be demanded in full;
2. Negotiated for a lesser amount;
3. The account may be sold to a third party collections agency.

Consolidation Loan � Typically a loan obtained from a lender to pay off other lenders. A debt consolidation loan, for example, may have a lower interest rate which allows the borrower to make only one payment per month instead of numerous payments.

Credit Limit � This is maximum amount of money that one may charge on a credit card, or take out in a loan.

Creditor � The company that borrowers use to lend money for goods or services, for the repayment of a loan or extended credit.

Credit Counseling � A professional (usually non-profit) company that gives advice to consumers regarding financial planning, budget management, and methods of debt repayment.

D.

Debt Relief � A method of debt reduction that involves formulating payment plans with one�s creditors to pay down debts while sticking to a realistic budget.

Discharge � A borrower who is relieved of the liability for the repayment of his/her debt. This can be accomplished by using a debt relief company to settle your debt to obtain a discharge or through filing for bankruptcy.

Debt-to-income Ratio � A monthly comparison of expenses to earnings expressed as percentages.

Debt Settlement � The process in which the negotiation with creditors is done in order to accept payment owed that is less than the full amount of the debt. Funds accumulate in a special account until enough has been saved to pay off each creditor, and repeats itself until all of the consumers debts have been repaid.

Debtor � A company or person who owes money to a creditor in exchange for goods or services, or for repayment of a loan.

Delinquency � The failure to make monthly payments to your creditors or lenders on a timely basis.

Default � The failure to pay back debt, such as in a mortgage or credit card as determined by your contract. For simplistic terms, a loan is considered in default if payment is 30 days past due.

E.

Equity � This term usually is defined as the difference between the market value of a piece of property and the amount of debt against it. A mortgage is an example of equity. If you home rises in value, while you are paying down the money owed on your note, you obtain equity (an increase or decrease in the value of your property. This was common until the housing bubble of the 1990�s. Equal Credit Opportunity Act Federal law passed by Congress in 1974 that prohibits discrimination against credit applicants based on race, color, religion, national origin, sex, marital status, age, or public assistance.

F.

Fair Debt Collection Practices Act � The federal law passed by Congress in 1977 that protects consumers against harassment and/or abuse from collections agencies.

Fair Credit Billing Act � The federal law passed by Congress in 1975 that protect consumers from billing and computational errors by lenders or creditors.

Fair Credit Reporting Act � The federal law passed by Congress in 1970 that regulates consumer credit reporting. In addition, the disclosure of credit information in regulated under this law.

G.

Grace Period � A certain period of time during which a payment on a debt is not yet due. Credit cards companies must disclose the grace period to the consumer for which it has lent credit.

Graduated Payment � This type of loan allows for a repayment schedule in which payments start out small however gradually increase over the time of the loan.

I.

Introductory Rate � Typically a low initial interest rate charged by a creditor that eventually increases once the specified period of time has expired. Credit card companies are the most common type of creditors to offer this rate in order to attract new business.

Interest Rate � The fee charged for the use of credit expressed as a percentage of the debt. It is calculated for a certain period of time, often annually or semi-annually.

M.

Minimum Payment � This fee represents the smallest amount of money that one may pay to a debtor to avoid going into default. In most cases it encompasses only the interest on a debt. Therefore, a consumer may be able to pay off debts by only making the minimum payment.

N.

Negative Amortization � The circumstances in which a partial payment is made on a debt, however instead of lowering the debt gradually, it increases the debt gradually. Negative amortization happens when you do not even cover the interest on your note, which then is added to the balance over time.

O.

Over-limit Fee � A fee charged to credit borrowers who do not pay their balances on time or past the allowable credit limits.

P.

Point-of-Sale � Literally, the time and place at which a transaction or agreement takes place.

Principal � The amount of an original debt that has not yet been paid. It does not include interest, but rather is the balance on which interest is based.

Power of Attorney � Otherwise known as POA, this is the written documentation that authorizes a person, business, or other entity to act on behalf of another person, business or entity in certain specified situations. Nationwide Debt Reduction utilizes a POA with its clients to act on their behalf when dealing with creditors.

R.

Revolving Credit Line � A agreement between a creditor and consumer whereby money is borrowed over a certain length of time, so long as a repayment plan is in place. A credit card is a perfect example of a revolving credit line.

S.

Secured Debt � Secured debt is a debt that is protected by the backing of personal property. For example, a mortgage on home is a secured debt. If you do not make your payments, the bank or lender can foreclose on your home and take it back from you. A vehicle would be another example of a secured debt. It is secured by your agreement to pay back the lender.

U.

Unsecured Debt � Unsecured debt is just the opposite of secured debt. It is not back any type of personal property. Credit cards are the best examples of unsecured debt. If for some reason you cannot make payments, no one can �take anything� back from you, or your personal property.