Debt glossary: every confusing term, in plain English

Reviewed by a consumer-protection attorney · Last reviewed July 2026 · General education, not legal advice

APR (annual percentage rate)

The yearly cost of borrowing — interest plus certain fees — expressed as a percentage. The higher the APR, the faster an unpaid balance grows.

Balance transfer

Moving credit card debt onto a new card, often with a 0% introductory rate. Usually costs a one-time fee of around 3–5% of the amount moved, and the rate jumps when the intro period ends.

Bankruptcy

A federal court process that discharges or restructures debts — commonly Chapter 7 (liquidation) or Chapter 13 (a 3–5 year repayment plan). Real relief with long credit consequences; a decision to make with a bankruptcy attorney.

Cease-and-desist (stop-contact) letter

A written request that a collector stop contacting you. Under the FDCPA, once received they generally must stop, except to confirm they will or to notify you of a specific action, like a lawsuit. It does not erase the debt — use it deliberately.

Charge-off

When a creditor writes your debt off as a loss on its own books, usually after 120–180 days of missed payments. It is an accounting move — you still owe the debt, and it's often sold to a collector. Full guide →

Collection agency

A company that collects debts on behalf of a creditor — or after buying the debt outright (see debt buyer). Third-party collectors are bound by the FDCPA.

Credit bureau

The companies that compile credit reports — Equifax, Experian, and TransUnion. Lenders report to them; you have the right to dispute errors with them.

Credit counseling

Guidance from an agency (usually nonprofit) on budgeting and debt. Many offer debt management plans. Different from debt settlement companies, which are for-profit.

Credit freeze

Locks your credit file so no one can open new credit in your name. Free at all three bureaus, and you can thaw it any time. A standard move after identity theft or a collector scam.

Credit report

The record of your credit accounts, balances, and payment history kept by each bureau. Accuracy is governed by the FCRA — you can dispute what's wrong.

Credit score

A number (commonly 300–850) summarizing the risk in your credit report. Payment history and utilization matter most.

Credit utilization

The share of your available revolving credit you're using. Keeping it low helps your score; maxed-out cards hurt it.

Creditor

Whoever you owe. The original creditor extended the credit; a current creditor may be a company that later bought the debt.

Debt buyer

A company that purchases charged-off debts — often for pennies on the dollar — and then collects the full amount. Paperwork frequently gets thin as debts change hands, which is why validation matters.

Debt consolidation

Combining multiple debts into one loan or payment. It can simplify life and lower your rate, but it doesn't reduce what you owe — and it usually requires decent credit.

Debt management plan (DMP)

A plan through a credit counseling agency: one monthly payment, and creditors often agree to reduced interest. Typically runs 3–5 years with modest fees. You repay in full — it's not settlement.

Debt settlement

Resolving a debt by paying less than the full balance, usually as a lump sum. You can negotiate it yourself — and always get the deal in writing first.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by gross monthly income. Lenders use it to judge how stretched you are.

Default

Falling far enough behind that, under your agreement, the account is seriously delinquent — triggering penalties, acceleration, or collection.

Default judgment

A court win handed to a collector because the person sued never responded — no proof required. It's how most debt lawsuits end, and it unlocks garnishment. The cure is simple: never ignore a summons.

Delinquency

Being behind on payments, reported in 30-day steps (30, 60, 90+ days late). The first missed payment also starts the 7-year credit-reporting clock.

FCRA (Fair Credit Reporting Act)

The federal law governing credit reports: accuracy, privacy, and your right to dispute errors and have them fixed or removed.

FDCPA (Fair Debt Collection Practices Act)

The federal law that limits what third-party debt collectors can do: no harassment, lies, or threats; restricted calling hours; validation and stop-contact rights. Full guide →

Garnishment

Court-ordered seizure of wages or bank funds to pay a judgment. For consumer debt it generally requires suing you and winning first, and federal law caps how much of your pay can be taken. Full guide →

Hardship program

A creditor's temporary reduction of interest or payments during a setback (job loss, medical event). Worth asking for directly — and getting the terms in writing.

Judgment

A court's decision that you owe the debt. Judgments unlock collection tools like garnishment and liens, last for years, and in many states can be renewed.

Minimum payment

The smallest amount that keeps a card current. Paying only minimums can stretch a balance into decades of interest — the math is the trap.

Original creditor

The company that first extended you the credit — the bank behind the card, not the collector calling about it. A validation request makes a collector name them.

Pay for delete

Asking a collector to remove its collection entry from your credit report in exchange for payment. Credit bureaus discourage it and no collector is obligated to agree — but some do. If one does, get the promise in writing before paying.

Principal

The amount you actually borrowed, before interest and fees are added.

Re-aging

Illegally resetting a debt's delinquency date so the negative mark stays on your credit report longer than the law allows. Disputable under the FCRA. (Creditors also use "re-age" for legitimately bringing a hardship account current — context matters.)

Secured vs. unsecured debt

Secured debt is backed by collateral the lender can take (house, car). Unsecured debt — credit cards, medical bills, most personal loans — isn't, which is why collection there runs through letters, negotiation, and courts instead.

Settlement letter

The written agreement documenting a settlement: the amount, that it settles the account in full, and how it will be reported. Never pay a settlement without one, and keep it forever.

Statute of limitations

The limited window (set by your state, often 3–6 years) during which you can be sued over a debt. The clock usually starts at your last payment — and payments or written acknowledgment can restart it. Full guide →

Time-barred debt

A debt past the statute of limitations. Collectors can still ask you to pay but can't sue or threaten to. Be careful: paying or acknowledging it can restart the clock in many states.

Validation notice / debt validation

The debt details a collector must provide (generally in its first contact or within five days), and your right to demand written proof the debt is yours and the amount is right. Full guide →

Zombie debt

Old debt — time-barred, settled, discharged, or even someone else's — that a buyer tries to revive. Before paying a cent: validate it and check the statute of limitations.

Reviewed by a consumer-protection attorney · Last reviewed July 2026.