When you are struggling with credit debt, you are definitely in good company. Millions of Americans are struggling to cope with the high credit debt they have amassed. The COVID-19 pandemic has left millions of Americans unemployed or underemployed, making it even more difficult for them to manage this debt. When you are in the process of figuring out the best way to pay off this debt, one of the most important things to learn is the jargon. Many terms refer specifically to credit debt and debt settlement. In fact, the National Debt Relief team has an entire glossary devoted to financial and debt terminology. You may not learn all of these debt terms in one sitting. However, the more you know and understand, the better. When trying to get out of credit debt today, you need to know at least these five terms.
1. Consolidation Loans
Often times when you are trying to pay off your credit card and other debts you will learn about the debt consolidation loan option. A consolidation loan is a single loan that a borrower takes out to consolidate all of their previous debts into this new loan. Consolidation loans typically have a lower interest rate and a longer repayment horizon than the borrower’s other debts, so monthly payments are lower than those the borrower has been exposed to with multiple credit card balances due.
In addition, after combining all of the debts in the new consolidation loan, the borrower only has a single debt settlement to deal with every month. This helps in streamlining bills and makes debt management a little easier. Because debt consolidation loans typically have an extended repayment period, one of these loans can leave you in debt longer than if you had chosen any other method to repay your debt. Finally, consumers who do not have good credit ratings (see below) may not even be able to qualify for one of these loans. You need to figure out an alternate method to get out of credit debt.
2. Credit Score
A credit score is a statistically derived numerical score based on various features of a person’s credit history. Essentially, it measures creditworthiness. Often times, a higher credit score results in better odds when a borrower is trying to get credit on a large purchase. Lending institutions use credit scores to determine factors such as the interest rate on a loan and the amount of down payment or collateral required. Your creditworthiness can also determine whether you even qualify for a loan.
Your creditworthiness is calculated by examining various factors on your financial record, such as: B. Your payment history, how much of your loan you are using, and various other aspects related to your use and amount of the loan. It is easier than ever to monitor your balance these days. Many online banks offer a real-time view of your creditworthiness on their dashboard, and numerous mobile apps track this for you as well.
3. Credit Report
While it is good to know your credit score, knowing it is not enough. This is where your credit report comes in. A credit report is a person’s credit history report compiled by a credit bureau that lists how individuals manage their debts and make payments, how much unused balance they have, and whether they have recently had it on any loans requested. The reports are made available to individuals and creditors who have legitimate information needs, e.g. B. When evaluating a person for a loan. This is also an important report that consumers can use to find issues with their credit so they can take the time to address them and improve their overall credit score. You can download your credit report once every 12 months for free (from any office).
4. Secured Debt
A secured debt is a loan that the borrower has pledged collateral on. The obligee can initiate foreclosure or repossession or use the property identified by the lien, known as security, to settle the claim if you default. A home is one of the most common assets used as collateral, but other valuable items can be used in a secured debt transaction. Secured debt is often classified as less risky by credit institutions, so borrowers who use collateral can often get loans at lower interest rates than if the debt were unsecured. In addition, borrowers with credit problems can often obtain loans by using collateral that they might not otherwise qualify for. However, if you start having payment problems or default on your secured loan, the lender may seize the asset used as collateral.
5. Variable interest rate
A floating rate is an interest rate that changes up or down on a set schedule based on an economic index such as the base rate. When trying to get out of credit debt, this is an important term to be aware of. People often use debt consolidation loans or credit card balance transfers to consolidate their credit cards or get lower monthly payments on their outstanding debts.
Although these adoption rates can start off low, the lender can increase them significantly after this introductory period is over. This could leave the borrower in a worse situation than when they took out the new loan or transfer card. Therefore, the first thing you should do before signing up for a credit card or loan, especially if you are using it to get out of debt, is to determine if the new loan has a floating rate.
Learn the Lingo!
If you are looking to get out of credit debt, it is helpful to familiarize yourself with the terminology that lenders, credit counselors, and other financial professionals are discussing the problem with. So, bookmark NDR’s financial glossary in your browser and read it whenever you need to be proficient in financial terminology!