Glossary for Those in Debt

Annual Percentage Rate

The yearly percentage rate imposed when a balance is held on a credit card. When an outstanding balance is held, this rate is applied to your outstanding balance each month.

Available Credit

The available credit on a credit card is the amount of money that can be charged on a specific credit card without going over the limit. It is the difference between the credit limit and the outstanding charges on the account. For example, if you have a balance of $100 on a credit card and your limit is $150; your available credit is $50.

Balance Transfer

A balance transfer occurs when an outstanding balance on one credit card is moved to another credit card account. This will be done by consumers when they are looking to save money on interest rates by moving their credit card balance to another card with a lower annual percentage rate. Many credit card issuers will offer low introductory interest rates to attract new customers. However, there are typically fees due along with balance transfers and introductory rates typically last for a few months to a year.

Collection

A credit card issuer will move a credit card balance to an internal or external collections agency if there is a past-due amount on a credit card that must be repaid. When a balance is in collections, this will damage a person’s credit score and make it difficult to borrow either on other credit cards or bank loans without having higher interest rates.

Credit Limit

A credit limit or credit line is the maximum amount of money that can be charged to a credit card account.

Credit Score

A credit score is a three digits number that summarizes how well a person or business has handled debt. Higher numbers indicate a better credit rating and allow for larger loans and better interest rates. Low numbers will indicate a worse credit rating and therefore borrowers will have terms with higher interest rates, less amounts available to borrow and may be turned down for loans or lines of credit. Though there are a variety of indicators of credit, the best known and most widely used system is the Fair Isaac Corp. (FICO) product.

Debt Consolidation

Debt consolidations is when multiple loans are combined into a new, single loan that offers a lower monthly interest rate and payment, or a longer repayment period. Many times, consumers will consolidate debt by transferring multiple balances of several high-interest rate credit cards on to a single, lower interest credit card account.

Default

Default is to fail to make the minimal payment on a credit card by the due date. If this occurs, credit card issuers may raise interest rates to the default rate, decrease the line of credit, or send the balance to collections. Depending on the creditor, a credit card will not typically be place in collections until a payment is 3 to 6 months delinquent. In situations of serious delinquency, the creditor may take legal action or garnish wages to enforce repayment.

Default APR or Penalty Rate

If a payment is made late on a credit card balance, the standard APR that was set at the beginning of the contract may increase to the default APR or penalty rate. This is typically much higher than the original APR. The default APR may be applied to all outstanding balances on the credit card account.

Finance Charge

The finance charge on a credit card is the total cost of borrowing on the account. This includes interest and fees and is shown in a dollar amount.

Non-dischargeable Debt

Non-dischargeable debt is an amount owed that cannot be cleared away by filing for bankruptcy. Examples of such debt vary between Chapter 11 bankruptcy and Chapter 7 bankruptcy. They include items such as family support, unpaid taxes and fines related to criminal charges.

Over The Limit Fee

Overlimit fee is the amount that is charged to your card if you surpass the amount of credit allowed on your credit card account.

Overlimit

Overlimit, or over-the-limit, means that the amount of debt that is charged to a credit card account is higher than the balance that is agreed to and allowed by the credit card lender. When a cardholder attempts to make purchases that will surpass the credit limit, the card issuer may decline the transaction or charge overlimit fees.

Time-Barred Debt

Time-barred debt is a type of old, unpaid debt. Every state has a statute of limitations that sets a limit on how long a creditor can get a court judgment forcing repayment of credit card debt. Typically this allotted time is three to 10 years, depending on the state. Debt that is older than this allotted time is considered “time-barred debt.” This debt does not go away. See 'Zombie Debt.'

Universal Default

Universal default is a common practice among credit card issuers. It allows credit card issuers to raise the interest rate for any change that indicates risk on a borrower’s profile with any other lender. Even if the borrower makes timely payments and does not go over the limit on that specific card, their interest rate can increase if they are late on another credit card, utilities, car payments, rent or mortgage payments.

Wage Garnishment

Wage garnishment is a legal means creditors use to collect the amount of money a borrower owes. This is a court-ordered technique of debt collections in which the borrower’s paycheck is deducted a set amount and paid to the creditor or a court until the debt is paid in full.

Zombie Debt

Zombie debt is old credit card debt that has passed the statute of limitations for creditors to use legal means to collect on a debt. However, creditors can still use collection agencies to collect on the debt. From the consumer’s perspective, debts don’t die; they just rise and live on – like a zombie.