Glossary of Common Debt Management Terms

Agreement:An written understanding between the client and the debt management provider. It principally concerns the debt management company's terms of business.

Amortization: The gradual repaying of a debt in partial payments rather than in single payment.

Annual Review: The full evaluation of the client's current financial situation on the anniversary of their commencing a Debt Management Plan or the anniversary of their last full review.

Arbitration: A method of alternative dispute resolution, other than a trial. Other forms of dispute resolution include mediation and negotiation.

Bankruptcy: The legally declared inability of a debtor to repay their obligations and court either liquidates their non-exempt property or restructures the debts in order to satisfy the creditors.

Budget: A list of detailed list of one's income and expenses, in order to plan for saving and spending needs.

Cleared Funds: Payments that the client makes into their Client Trust Account with a debt management company are called Cleared Funds. These funds can be drawn on, irrespective of the method of payment, for example; direct debits, standing orders, debit card, bank giro credits or electronic transfers.

Complaint: A legal document that states the specific charges against you in lawsuit.

Credit Counseling: A method of debt relief which is employed to help debtors negotiate with creditors to formulate a repayment plan.

Currently Not Collectible: If you are financially strapped, then applying for this status using form 433-F will prevent the IRS from collecting taxes you owe.

Debt: An amount of money that somebody to owes to another.

Debt Collection Agency: A third party agency creditors either hire to collect a debt on their behalf or sell a debt they have been unable to collect on for less than the full amount of the amount owed.

Debt Consolidation: With debt consolidation you merge your multiple debts into one debt and pay it off at a fixed interest and over a long period of time.

Debt settlement: A debt reduction program, where the creditor accepts a lower amount from debtor that is considered full payment of the obligation.

Debt Snow-ball: An easy method of debt repayment where the debtor pays off the debt with the smallest balance first while paying the minimum on the other debts.

Debt-to-income Ratio: A comparison of monthly expenses to monthly income expressed as percentage.

Default: Failure to repay a debt according to the terms of the legal contract. A debt is assigned a default status if the payment is 30 days past due and collection actions can be started.

Effective Annual Rate (EAR): The interest rate on a loan paid over the course of year, after taking into account compounding within the year. It is the actual interest rate one pays on debt.

Fair Debt Collection Practices Act: A set of federal laws detailing the rights of the debtors against unfair debt collection practices.

Garnishment: A forceful repayment of debts collected by a creditor. The most common form of garnishment is the deduction of wages from a monthly paycheck to pay down a debt.

High interest Method: A method of debt repayment where the debtor pays off the high interest debt first while paying the minimum on the rest.

Installment Credit: A form of credit with a repayment schedule set over a limited time period and regular, mostly monthly payments. Common forms include mortgages and auto loans.

Levy: When a creditor can legally access a debtor's bank accounts and take money from there. This is possible only if a judgment has been granted.

Lien: Right of a creditor to collect a portion of the sale price equal to the amount owed if the debtor.

Minimum payment: The least amount that a creditor is required to pay every month in order to avoid default.

Monthly Management Fee: A monthly fee for managing the client's affairs with their listed creditors, providing on-going debt advice, managing payments, processing correspondence receive from creditors, dealing with new creditors or agencies when notified, and generally acting in the client's best interests over the duration of the Debt Management Agreement.

Priority Creditors: These include regular payments and payment defaults for mortgage, rent, and utility bills. Individuals should not ignore any payments enforced by a court.

Revolving Credit: In this kind of credit lending, the borrower can draw money up to a pre-determined amount from the creditor/lender account. As long as the borrowed amount is repaid on time, the borrower may borrow more money within the fixed limit. Credit cards and Home Equity Lines of Credit are popular revolving lines of credit.

Secured Credit: Secured credit is where the creditor is entitled to a pre-agreed asset if debtor fails to repay on this type of debt. These usually come with lower interest rates. Examples include mortgages, auto loans and also Home Equity Lines of Credit.

Unsecured Credit: Unsecured credit does not entitle the creditor to seize an asset if the debtor defaults on the debt. Compared to secured debt, these usually feature higher interest rates and lower loan amounts. Common examples include credit card debts.

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