Debt glossary
Most of these words arrive in a letter you did not ask for. Here is what they actually mean, without the sales gloss.
Several of these terms are legal ones. We are not a law firm and none of this is legal advice; where a term has consequences that depend on your state or your circumstances, we say so and point you at someone qualified.
1
1099-C
The tax form issued when a lender cancels debt above a threshold. Forgiven debt can count as taxable income, though exceptions exist. We do not give tax advice; ask a tax professional what it would mean in your case.
Not legal advice
A
Annual percentage rate (APR)
The yearly cost of borrowing, expressed as a percentage. On a credit card the APR is charged monthly on whatever balance you carry, at roughly one twelfth of the annual rate. It is the number that decides how much of each payment disappears before it touches what you owe.
C
Charge-off
An accounting decision by a lender to write a debt off their own books as a loss, usually somewhere after 120 to 180 days of missed payments. It is the most misread word on a credit report: it does not mean the debt is cancelled, that you no longer owe it, or that anyone has stopped collecting. It means the lender has stopped expecting to be repaid in full.
Collection agency
A company that pursues a debt on behalf of the original creditor, usually for a share of whatever it recovers. The creditor still owns the debt, which means the creditor still decides whether to accept a settlement.
Creditor
Whoever you owe. On an unsecured account this is normally the bank or card issuer that extended the credit, until the account is sold or assigned to someone else.
D
Debt buyer
A company that purchases charged-off debts outright, typically for a fraction of the face value, and then collects for itself. Because it owns the account it sets its own terms, which is why a sold debt often behaves differently from one still with the original lender.
Debt consolidation
Borrowing once, usually at a lower rate, to pay off several existing balances. The debt does not shrink, it moves somewhere cheaper. It depends on qualifying for the new loan, which is the part that rules it out for a lot of people who most want it.
Debt management plan
An arrangement, usually through a nonprofit credit counseling agency, where you repay balances in full over time at reduced interest through a single monthly payment. Different from settlement: the full principal is still repaid.
Debt resolution (debt settlement)
Negotiating with creditors so they accept less than the full balance to close an account. It applies only to unsecured debt, and it works by putting funds behind an offer rather than by paying the account as agreed. It is what we do.
Dedicated account
The account your program deposits go into, which you own and control. Settlements are paid from it, and nothing leaves it without your approval. A company that wants your deposits held somewhere you cannot see is not running a normal program.
Delinquency
An account past its due date. Reporting usually begins at 30 days and worsens in steps at 60, 90 and beyond, with each step doing more damage to a credit score than the one before it.
E
Enrolled debt
The specific accounts placed into a program. Fees are calculated against this figure, so it is worth being clear which accounts are in and which are not before you sign anything.
F
Fair Credit Reporting Act (FCRA)
The federal law governing what may appear on a consumer credit report, how long it stays and how to dispute it. Most negative entries fall off after around seven years from the original delinquency. This is a legal framework rather than advice; if you think something is being reported wrongly, that is worth raising with an attorney or the Consumer Financial Protection Bureau.
Not legal advice
Fair Debt Collection Practices Act (FDCPA)
The federal law setting limits on how third-party debt collectors may behave, including when and how they may contact you and what they may say. We are not a law firm and cannot advise you on whether a particular contact broke it. If you think one did, speak to an attorney or file a complaint with the Consumer Financial Protection Bureau.
Not legal advice
G
Garnishment
A court-ordered deduction from wages or a bank account to satisfy a judgment. What can be taken, and what is protected, depends heavily on your state and on the type of income. This is one to take to an attorney rather than read about.
Not legal advice
H
Hardship program
A temporary arrangement offered directly by some lenders, usually reducing interest or payments for a fixed period. Worth asking your creditor about before assuming a program is the only option, because it costs your credit nothing.
J
Judgment
A court's decision that a debt is owed, obtained by a creditor or debt buyer who sued and won. A judgment unlocks collection methods that are not otherwise available. Ignoring a lawsuit is the usual way a disputed debt turns into one.
Not legal advice
M
Minimum payment
The smallest amount a card issuer will accept in a given month, typically around 1% of the balance plus that month's interest. Because it is a percentage, it falls as the balance falls, which is why paying only the minimum stretches a payoff over decades rather than years.
P
Principal
The amount actually borrowed, as distinct from the interest charged on it. On a long-running card balance, a large share of each payment goes to interest and never reduces principal at all.
S
Secured debt
A debt with property behind it, such as a mortgage or a car loan. If it is not paid, the lender can take the property. Secured debts cannot go into a debt resolution program.
Settlement
An agreement with a creditor to close an account for less than the balance owed. It should be confirmed in writing before any money moves, and it is generally reported to the credit bureaus as settled rather than paid in full.
Statute of limitations
The period during which a creditor can use the courts to collect a debt. How long it runs, when it starts and what can restart it all vary by state and by the type of debt, and making a payment can sometimes reset it. Because the details decide the outcome and the details are state law, this is a question for an attorney rather than for us.
Not legal advice
T
Telemarketing Sales Rule
The federal rule that, among other things, bars a debt relief company signed up over the phone from charging any fee before it has actually settled a debt for you, you have agreed to that settlement and you have made a payment toward it. It is the single most useful test of whether a company is legitimate.
Not legal advice
U
Unsecured debt
A debt with no property behind it: credit cards, store cards, unsecured personal loans, credit union accounts, medical bills and accounts already in collections. This is the only kind a resolution program can work on.
V
Validation notice
The written notice a debt collector must send confirming who is owed, how much, and how to dispute it. Asking for it in writing before discussing a debt is reasonable and routine.
Nothing matches that. Try a shorter word, or call us and ask.
