Glossary of Debt Terminology
Is part of your financial struggle related to understanding complex debt terminology? Are you confused about your options for debt relief, including how the settlement process works or what to know about debt consolidation before getting started? Liberty Debt Relief is here to help clarify some of these terms a bit with our handy debt glossary. Read up on some of the most common debt phrases you might come across and then contact our experts for your free consultation!
When beginning your journey towards debt relief, it helps to start with the basics. Here is some general debt terminology that could help you better understand your financial situation:
Principal: The amount borrowed by the debtor, not including any fees or interest rates.
Accrued Interest: This is calculated based on the unpaid balance and will build until the debt is paid off completely. This is typically why it is harder to pay off debts with high interest rates because, the higher the interest due, the less money from a payment goes towards the overall principal.
Federal Trade Commission (FTC): A government agency that protects consumer and debtor rights by enforcing consumer protection laws.
Types of Debt
Our debt glossary also covers the two different types of debt, secured and unsecured. Importantly, most debt relief programs only apply to unsecured debts.
Secured Debt: A loan or line of credit that is backed by collateral, such as a vehicle, home, or other assets. Typically, these types of loans offer more favorable terms.
Unsecured Debt: A loan or line of credit that is not supported by any assets. This includes credit cards and most personal loans. Because these types of loans and credit lines are riskier for the lender, they sometimes have less favorable terms.
Debt Terminology Related to Financial Hardships
If you’re experiencing a financial hardship and you’re struggling to pay off your debts, you have seen the following phrases before but didn’t fully understand them. They include:
Delinquency: An account status brought on when a debtor misses a payment based on the loan agreement terms and set due dates.
Forbearance: A postponement of loan repayments granted by creditors when the debtor is experiencing a financial hardship and cannot make payments temporarily.
Garnishment: When a portion of an employee’s wage is held to pay a lender until the balance is paid off.
Wondering what you should know about debt consolidation or debt negotiation programs before signing up? Our consultants will work with you to strategize your own unique plan for debt relief. During your consultation, you hear debt terminology that includes the following:
Debt Settlement: A negotiation between a debtor and their lender with the purpose of agreeing to a reduced amount due. Some debtors who work with settlement companies like Liberty Debt Relief may even cut their debts in half!
Debt Consolidation: A separate loan, typically with a lower interest rate, in which a debtor combines all their debt into one monthly payment.
Credit Repair: Disputing errors on your credit report, such as late payments that were actually paid on time or duplicate charges, with your creditors and various credit report companies.
Debt Management: A plan set up for debtors by credit counselors, which includes working with lenders and negotiating lower interest rates for unsecured debt. This will reduce the amount paid over time.
Debt Consultant/Specialist: Experienced and knowledgeable professionals who are trained to meditate debt negotiations with creditors in order to bring about favorable terms for both lenders and debtors. This may include the repayment period, interest rates, or even the total amount due.