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10 Key Terms to Know When You Are In Debt

Dealing with debt is confusing. Not only can the options available to you feel overwhelming, but the sheer number of unfamiliar terms used to even discuss debt can also be confusing. For many people who have fallen behind on payments or who are in over their head in debt, even simply understanding all the terms used by creditors can be difficult.

The first step towards taking control of your finances and getting out of debt is to learn more about your situation. A great place to start is learning all the key terms related to debt that may be used during discussions of your financial situation. These 10 key terms will help you be able to discuss your own debt more knowledgably and give you a clear picture of what you should know if you’re in debt.

  • Delinquency: If you fail to make a payment on a debt on time, your account is considered delinquent. Usually a delinquent account will not automatically be reported on your credit report, but it can be (and eventually will be). Delinquent accounts can be put in collection.

  • In Collection: When you fail to pay a debt payment on time, your account can be put in collection. This means that a collections department or agency has been assigned to get your past-due debt repaid. Usually, when your debt is in collection, you will receive regular calls and the delinquency will be put on your credit report.

  • In Default: After a certain amount of time, a delinquent debt will go into default. For some credit cards, this happens after just a short time, such as 30 days. For a mortgage, it is usually after three missed payments. Student loans take the longest time to go into default—usually about nine months. When a loan goes into default, technically the full debt can be called upon for payment. Generally, legal proceedings, such as foreclosure or lawsuits can happen at this point.

  • Default APR: When your credit card account is in default, the default APR (annual percentage rate) or penalty rate is activated. This means that your credit card debt will accrue interest at a much higher rate.

  • Universal Default: Universal default is a common practice among credit card issuers that allows them to increase your interest rates after you default to another lender. This means that if your account to any creditor, such as other credit card issuers, utilities providers, car lenders, landlords or mortgage lenders is in default, your interest rates can be raised as if you were in default, whether or not you were ever late paying the issuer with the universal default clause.

  • Credit Score: This number is designed to analyze how well you handle your debt, and therefore how much of a risk you are to lend to. This score plays an important role in the types of loans you will qualify for and at what rate.

  • Wage Garnishment: If you are in default, lenders can apply to have your wages garnished for the amount you owe. In these cases, the sum will be taken directly from your paycheck or entitlement by the court.

  • Nondischargeable Debt: This kind of debt cannot be cleared away even in bankruptcy. Often, this includes student loan debt, child support payments, and alimony. Dischargeable debts, on the other hand, can be eliminated through bankruptcy.

  • Chapter 7 Bankruptcy: During this legal proceeding, certain assets are liquidated and paid off to your creditors. After the procedure is finished, you are freed of all dischargeable debts right away, and you have a clean financial slate.

  • Chapter 13 Bankruptcy: During this legal proceeding, you follow a structured plan to pay off your debts as much as possible over three or five years under the management of a bankruptcy trustee. After this time, all of your remaining dischargeable debts are eliminated, and you have a clean financial slate.

These ten terms come up often during discussions of debt, so it is helpful to memorize them all. Still, simply understanding the definition of debt terms is often not enough to help you get free of large debts. If you are struggling to pay your payments on time or are already falling behind, it often helps to discuss your options with an experienced Cleveland bankruptcy attorney.

Call us today at Luftman, Heck, and Associates today for a free consultation on your situation at (216) 586-6600. We will give you clear, easy to understand explanations of your options and tell you honestly the details of what you should know if you’re in debt. Don’t let another day pass by as you suffer to figure it out alone. Let us help.