Credit Card Debt Glossary
Bad-credit credit cards
These cards, which help consumers rebuild their credit by keeping their account balances below the credit limit and making timely payments, are of particular benefit to borrowers with a damaged credit history or no credit history. Both unsecured and secured bad-credit credit card providers report to credit bureaus, thus enabling borrowers to re-establish a positive credit score. Many bad-credit credit cards offer a zero interest rate during the first year as well as bonus points and rewards.
Bankruptcy
This refers to the legal proceeding in which businesses or individuals declare themselves unable to repay debts and are granted a fresh start. Bankruptcy also ensures that a debtor's assets are equitably distributed among his or her creditors. Chapter 7 bankruptcy allows debtors to have most of their debts forgiven, while Chapter 13 bankruptcy enables them to restructure their debt or repay it pursuant to a payment arrangement.
Circuit breaker programs
These popular property tax relief programs reduce the property taxes paid by taxpayers earning below a specific income level. Numerous states offer circuit breaker programs, many offering its benefits to both the elderly and the under-65 population and a growing number extending eligibility to renters as well as homeowners.
Consolidation loan
This personal loan, which offers reduced interest and monthly payments and a longer repayment term, consolidates and pays off two or more loans.
Consumer credit counseling services
Organizations specializing in these types of services typically help consumers 1) balance their budgets, 2) manage their money, 3) create a debt management plan (DMP) by negotiating for a lower monthly payment and interest rate with creditors, 4) eliminate over-the-limit and late fees, 5) stop calls from collectors, 6) avoid bankruptcy and foreclosure. Consumer credit counseling services also include credit counseling and financial education.
Credit card consolidation
This involves combining numerous high-credit card balances into one single card boasting a lower interest rate and reduced monthly payments to just one creditor. Credit card consolidation may be achieved via a home equity loan or line of credit, a low-interest personal loan, or a low or 0% interest credit card.
Credit limit
This represents the maximum sum of money that a borrower may charge on a credit card and includes finance charges, cash advances, fees, and purchases. A consumer's credit history determines his or her credit limit.
Credit rating
Also known as the FICO score, this ranking tabulated by a credit reporting agency of a borrower's payment history, debts and assets provides an assessment of a business or individual's creditworthiness. A credit rating helps lenders determine the likelihood that a borrower will repay a loan.
Credit repair service
Companies offering this service help consumers clean up their credit report and improve their FICO score by disputing negative items such as tax liens, charge-offs, and bankruptcies. Credit repair services assist clients in the removal of misleading and erroneous entries from their credit reports and advise them on debt management and new credit building.
Debt Management Plan
This involves an indebted consumer's deposit of monthly funds with a credit counseling agency, which in turn utilizes the moneys to pay off the client's unsecured debt pursuant to a payment arrangement between the client and his or her creditors. DMPs, which may take 48 months to complete, offer the benefits of waived late fees, low interest rates, affordable monthly payments, and one convenient payment to one creditor.
Debt Proration
This consists of an agreement between a creditor and borrower, typically brokered by a credit counselor, to lower payments to a portion of the amount due. In debt proration, living expenses are decreased in order to free up as much cash as possible for the repayment of debts.