Glossary of Debt Terms

A B C D E F H I L M N O P R S U

A

Ability to pay: A debtor's ability to meet current and future debt obligations.
Attachment: The act of seizing a debtor's property and placing it under a court's control.
Average life: The length of time that will pass before one-half of a debt obligation has been retired.
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B

Bad debt: Accounts that will likely remain uncollectable and will be written off. Bad debts appear as an expense on a company's income statement and reduce their net income. Most companies make a bad debt allowance since it is unlikely that all of their debtors will pay them in full.
Balance: A debtor’s outstanding debt on a loan.
Bankruptcy: A debtor that, upon voluntary petition or by the debtor’s creditors, has been declared insolvent through court proceeding. The debtor’s assets are surrendered to a court-appointed trustee.
Borrow: To obtain or receive something of value on loan with the promise or understanding of giving something of greater value at a later time.
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C

Cancellation of debt: Release of a debt without consideration by a creditor.
Capital: Money, property and other valuables that represents the wealth of individuals or businesses.
Consumer Debt: Debt used to fund consumption rather than investment.
Credit: The confidence in a debtor’s ability and intention to pay, displayed by entrusting the buyer with goods or services without immediate payment.
Credit Card Debt: The amount gathered and owed to a lending organization for funds borrowed.
Credit Limit: The maximum amount of credit a lender will allow a customer to borrow at any given point, usually on a specific credit card.
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D

Debt: The state of owing something, usually money, to a person or company for something borrowed. Debt can be a loan, bond, mortgage or some form of repayment that involve terms and interest requirements.
Debt Advice: Term used when a person or entity seeks help from another source regarding debt.
Debt Consolidation: Services that assist in consolidating debt, which may involve getting a loan.
Debt Counseling: Services that assist in lowering debt.
Debt Elimination: The debtor eliminates the amount of debt owed.
Debt Free: Occurs when a debtor no longer has outstanding financial obligations.
Debt Help: Products or services that assist in lowering debt.
Debt Reduction: a transaction which involves a reduction in the face value of an outstanding debt.
Debt Relief: A term most commonly used to describe the partial or total forgiveness of debt. It is most typically associated with debt reduction and debt settlement or both.
Debt Management: Taking control over finances and money.
Debt Management Program: Services that assist in gaining control over finances and debt.
Debt Settlement: An approach in debt reduction in which the debtor and the creditor agree on a reduced balance that will be regarded as payment in full.
Default: Failure to make the required debt payments on a timely basis or to comply with other conditions of an obligation or agreement.
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E

Equity: The value of a property minus the owner's outstanding mortgage balance. Equity also increases as the property enjoys appreciation.
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F

Floating debt: Continuously refinanced short-term debt.
Funded debt: Loans and obligations with a maturity of longer than one year and accompanied by interest payments can also be referred to as long-term debt.
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H

Home equity debt: Debt secured by using your home’s equity as collateral.
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I

Insolvency: The inability of the debtor to pay the debt as it falls due.
Interest: The fee paid on borrowed assets.
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L

Legal Assets: Any property which can be used for repayment of a debt.
Lien: A legal claim against an asset which is used to secure a loan and which must be paid when the property is sold.
Long-term debt: Loans and obligations with a maturity of longer than one year and accompanied by interest payments, can also be referred to as funded debt.
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M

Mortgage Debt: Debt created by a mortgage and secured by the mortgaged property.
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N

Nonrecourse Debt: A loan that is secured by some means of collateral, but for which the debtor is not personally liable. Should the debtor default, the lender can seize the collateral, but recovery of debt is limited to the worth of the collateral.
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O

On account: In partial payment of a debt.
Outstanding Debt: Unpaid portion of a debt that may include interest accrued on the balance.
Owe: To be indebted.
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P

Paper: A short-term debt security.
Preferred debt: Debt that must be discharged before another obligation or a debtor in liquidation.
Prepayment: The payment of all or part of a debt prior to its due date.
Prioritization of debt: Preferred treatment of one debt over another.
Private Debt: Money owed by individuals and businesses within a given country.
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R

Reduce Debt: The act of lowering the total amount of outstanding money owed.
Repo: When the lender reclaims possession of the pledged collateral or legally forces a sale of a property because the borrower has not met the terms of the loan.
Retire: To pay off a debt.
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S

Satisfaction of Debt: Document issued by a lender upon complete repayment of a debt.
Secured Debt: A loan in which the debtor pledges some type of asset (home, car, etc.) as collateral for the loan, the debt is secured against the collateral. In the event that debtor defaults, the creditor takes possession of the asset and can sell it to satisfy the debt.
Security: Property or assets that are pledged as collateral for a loan.
Senior: Receiving priority in a debt claim in the event of liquidation.
Settle: To pay a debt or complete a transaction.
Solvent: Able to pay all debt obligations as they become due.
Subrogate: Take over a legal claim or right against a third party from another party who previously owned that right or claim. One example of subrogation is the taking over of a debt from a previous creditor.
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U

Universal Default: The financial services industry practice where a lender changes the terms of the customer’s loan from normal to default. This can occur when the lender is informed that their customer has defaulted with another lender, even though the customer has never defaulted with them.
Unsecured Debt: Debt or a general obligation that has no collateral (assets) associated with it.
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