Consumer Debt Glossary
The terms that show up constantly when you research debt relief, defined in plain language. Where a term deserves more than a definition, it links to the full Knowledge Center article.
A
- Annual percentage rate (APR)
- The yearly cost of borrowing, expressed as a percentage. On credit cards, it is the rate applied to balances you carry month to month.
- Automatic stay
- A court order that takes effect the moment a bankruptcy case is filed, pausing most collection activity, lawsuits, and garnishments while the case proceeds. Chapter 7 explained →
B
- Balance transfer
- Moving a credit card balance to a new card, often with a low promotional rate. It reorganizes the debt rather than reducing it, and usually requires decent credit to get worthwhile terms.
- Bankruptcy
- A federal court process for resolving debt you cannot repay, either by discharging it (Chapter 7) or restructuring it into a court-supervised repayment plan (Chapter 13). Settlement vs. bankruptcy →
C
- Chapter 7 bankruptcy
- The faster form of bankruptcy, which can eliminate most unsecured debt in a few months through a court process, with possible asset exposure depending on your state's exemptions. Read more →
- Chapter 13 bankruptcy
- A court-approved repayment plan, usually three to five years, built around steady income. Often used to catch up on secured debt like a mortgage while keeping the property. Read more →
- Charge-off
- An accounting step a creditor takes, typically after about 180 days of missed payments, declaring the debt unlikely to be collected. You still owe it; collection activity often continues or the debt is sold. What is a charge-off? →
- Collection agency
- A company that pursues payment on past-due debts, either on behalf of the original creditor or after buying the debt outright. Read more →
- Credit counseling
- Guidance from an agency, often nonprofit, that reviews your budget and options. Many agencies also administer debt management plans. Read more →
- Credit report
- The record of your borrowing history kept by the credit bureaus: accounts, balances, payment history, and public records like judgments.
- Credit score
- A number summarizing your credit report, used by lenders to gauge risk. Payment history and how much of your available credit you use matter most. Understanding credit scores →
- Credit utilization
- The share of your available credit you are currently using. Lower is generally better for your score; high utilization signals strain.
- Creditor
- Anyone you owe money to: a card issuer, a bank, a medical provider, a lender.
D
- Debt buyer
- A company that purchases charged-off debts, often for pennies on the dollar, and then owns the right to collect the full balance.
- Debt consolidation loan
- One new loan that pays off several debts, leaving a single payment. It does not reduce what you owe, only how you pay it back, and approval usually requires decent credit. Settlement vs. consolidation →
- Debt management plan (DMP)
- A structured repayment plan run through a credit counseling agency. You typically repay close to the full balance, often at reduced interest, over several years. What is a DMP? →
- Debt settlement
- An agreement where a creditor accepts less than the full amount you owe as payment in full, usually negotiated while the account is delinquent. It applies to unsecured debt only. How debt settlement works →
- Dedicated account
- The account you own and fund monthly during a settlement program. Settlements are paid out of it, with your approval, as balances accumulate.
- Default
- Failing to meet the terms of a loan or credit agreement, most often by missing payments long enough that the creditor treats the agreement as broken.
- Delinquency
- Being behind on payments. Delinquencies are reported in stages (30, 60, 90+ days) and are the main driver of credit score damage.
- Debt validation
- Your right, after a collector's first contact, to demand written proof that the debt is real, the amount is right, and the collector has the authority to collect it.
F
- Fair Debt Collection Practices Act (FDCPA)
- The federal law that limits how third-party debt collectors can behave: when they can call, what they can say, and what counts as harassment. Collection calls →
- Form 1099-C
- The tax form a creditor may send when it cancels or forgives debt. The forgiven amount can be treated as taxable income, with exceptions such as insolvency. How the IRS treats forgiven debt →
G
- Garnishment
- A court-ordered deduction taken directly from your paycheck or bank account to pay a debt, generally available to a creditor only after it wins a judgment. Can my wages be garnished? →
H
- Hardship
- A sustained financial setback, such as job loss, medical events, divorce, or income reduction, that makes existing payments genuinely unaffordable. Real hardship is what settlement programs are built around. Who settlement is designed for →
I
- Insolvency
- Owing more than your assets are worth. For tax purposes, being insolvent when a debt is forgiven can reduce or eliminate the tax owed on the forgiven amount. Read more →
- Interest
- The cost of carrying a balance, charged as a percentage of what you owe. On minimum payments, interest is the reason balances barely move. Settlement vs. minimum payments →
J
- Judgment
- A court's official decision that you owe a debt, entered after a lawsuit. A judgment unlocks stronger collection tools like garnishment and bank levies. What is a judgment? →
L
- Lien
- A legal claim against property as security for a debt. A mortgage is a lien on your house; some judgments can become liens too.
- Lump-sum settlement
- Resolving a debt with a single negotiated payoff, rather than a payment plan. Lump sums often produce better settlement percentages because the creditor gets paid at once.
M
- Minimum payment
- The smallest amount a card issuer will accept each month. Paying only minimums keeps the account current but can stretch payoff into decades. Read more →
O
- Original creditor
- The company you first borrowed from, as opposed to a collection agency or debt buyer that took over the account later.
P
- Principal
- The core amount you owe, before interest and fees. Settlement is one of the few approaches that reduces principal rather than just restructuring it.
R
- Repossession
- A lender taking back property, like a car, that secures a loan in default. Secured debts like these are why settlement applies to unsecured debt only. Can I keep my car? →
- Revolving credit
- Credit you can borrow against repeatedly up to a limit, like a credit card, as opposed to a loan with a fixed payoff schedule.
S
- Secured debt
- Debt backed by collateral the lender can take if you stop paying: mortgages, auto loans, some personal loans. Settlement generally cannot resolve secured debt. What cannot be settled →
- Settlement agreement
- The written terms of a settlement: the amount, the deadline, and the confirmation that payment resolves the account. Get it in writing before any money moves. How to read the agreement →
- Settlement fee
- What a settlement company charges, calculated as a percentage of debt it actually settles. By federal rule, it cannot be collected before a debt is settled. Understanding fees →
- Statute of limitations
- The state-law time limit for suing over a debt. After it passes, the debt still exists, but a lawsuit generally is not a valid way to collect it. Read more →
- Summons
- The court paperwork that starts a lawsuit against you. Responding to it on time matters enormously; ignoring it usually leads to an automatic judgment. Already been sued? →
T
- Telemarketing Sales Rule (TSR)
- The FTC rule that, among other things, prohibits debt relief companies from charging fees before a debt is actually settled. What no upfront fees actually means →
- Time-barred debt
- Debt older than the statute of limitations. Collectors may still ask you to pay, but suing over it generally is not a valid option, and in some states a small payment can restart the clock. Read more →
U
- Unsecured debt
- Debt with no collateral behind it: credit cards, medical bills, most personal loans. This is the category debt settlement is built for. What can be settled →
- Upfront fees
- Fees charged before any debt is settled. For debt relief services covered by the TSR, charging them is illegal, and being asked for them is a serious red flag. Red flags to watch for →
V
- Validation notice
- The written notice a collector must send after first contacting you, stating the amount owed, the creditor, and your right to dispute the debt.
W
- Wage garnishment
- Garnishment applied to your paycheck specifically: your employer is ordered to withhold part of your wages and send it to a judgment creditor. Read more →
Definitions here are general education about how these terms typically work in the United States, not legal, tax, or financial advice. Details vary by state and by contract, so for your specific situation, a licensed professional is the right source.