No jargon. No fine print. Just plain explanations of the words you'll encounter when dealing with debt.
The overall process of getting out of debt — by any means. It's a broad term that covers everything from paying your balance in full to negotiating, settling, or even filing for bankruptcy. If you're trying to put a debt behind you, that's debt resolution.
When you negotiate with a creditor to pay less than what you owe, and they agree to call it even. For example, if you owe $10,000 you might offer $4,000 as a one-time payment and the remaining $6,000 is forgiven. Creditors sometimes accept this because getting something now is better than chasing payments. For a step-by-step guide on initiating this yourself, see our Hardship Tier 1 guide.
A structured repayment program, usually set up by a credit counseling agency. The agency negotiates lower interest rates with your creditors on your behalf. You make one monthly payment to the agency, and they distribute it to each creditor. You still pay the full amount you owe — just at a lower rate and with one simple payment.
A service — often free or low-cost through a nonprofit — where a trained counselor reviews your income, expenses, and debts, then helps you build a realistic plan to get back on track. They can also enroll you in a Debt Management Plan if that's the right fit. Think of it as a financial check-up.
A legal process that gives you a fresh start when your debts are completely unmanageable. The two most common types are Chapter 7, which wipes out most unsecured debts quickly (usually in 3–6 months), and Chapter 13, which sets up a 3–5 year court-supervised repayment plan. It stays on your credit report for 7–10 years and has serious consequences, but it also stops all collection activity immediately.
The smallest amount your credit card or lender requires you to pay each month to stay out of default. It keeps your account in good standing, but because it barely covers the interest, paying only the minimum means your balance barely shrinks. On a $5,000 balance at 20% APR, paying just the minimum can take over 20 years and cost more in interest than the original debt. Banks also watch for a shift to minimum-only payments as a sign of financial stress — learn how in our Early-Bucket Flags guide.
Paying off a debt all at once with a single payment, rather than over time. Lump-sum offers are often accepted at a discount — sometimes 40–60 cents on the dollar — because creditors would rather have cash in hand today than wait for monthly payments that may never come. Our Hardship Tier 1 guide covers how to negotiate this directly with your bank, including what to say and when to call.
A three-digit number, usually between 300 and 850, that represents how reliable you've been about paying back borrowed money. The higher the number, the better. Lenders use it to decide whether to approve you for a loan or credit card, and what interest rate to charge. A score above 700 is generally considered good; below 580 is considered poor.
A detailed history of every loan, credit card, and line of credit in your name — including your payment history, how much you owe, and any missed payments or collections. Your credit score is calculated from this report. You're entitled to a free copy from each of the three major bureaus (Equifax, Experian, TransUnion) every year.
When a creditor officially gives up on collecting your debt and writes it off as a loss on their books — typically after 6 months of missed payments. A charge-off looks terrible on your credit report, but it does not mean the debt disappears. The creditor can still try to collect, or they can sell the debt to a collections agency. The window to negotiate before a charge-off — typically 61 to 90 days delinquent — is your best opportunity, covered in our Hardship Tier 1 guide.
A debt that has been handed over to a collections agency after you stopped paying the original creditor. The agency paid pennies on the dollar for the debt and now has the right to contact you to collect the full amount. A collections account damages your credit score significantly and can stay on your report for up to 7 years. If you're approaching this stage, our Hardship Tier 1 guide explains what can still be negotiated.
A creditor is the company you originally borrowed money from — your bank, your credit card company, or the hospital that billed you. A debt collector is a third party, usually a separate company, that either purchased your debt or was hired to collect it after you fell behind. Debt collectors have different rules they must follow under federal law (the Fair Debt Collection Practices Act), including restrictions on when and how they can contact you.
The legal deadline after which a creditor can no longer sue you in court to collect a debt. Once this window closes, the debt is considered "time-barred." The clock usually starts from the date of your last payment, and the timeframe varies by state — typically 3 to 6 years. The debt can still exist and appear on your credit report, but a collector cannot win a lawsuit against you for it. Important: making a payment or even acknowledging the debt in writing can restart the clock in some states.
A court order that officially declares you legally owe a debt. A creditor gets a judgment by suing you and winning (or by you not showing up to court). Once a judgment is entered, the creditor gains powerful collection tools — including the ability to garnish your wages directly from your paycheck or freeze money in your bank account. Avoiding a judgment by responding to any legal notices is critical.
The percentage of your balance that a lender charges you for borrowing money, calculated annually. If your interest rate is 20%, you're paying $20 per year for every $100 you owe. Interest is what makes debt grow over time — the longer you carry a balance, the more you pay.
The true yearly cost of a loan, expressed as a percentage. Unlike a bare interest rate, APR includes fees and other charges rolled in, so it gives you a more complete picture of what borrowing actually costs. When comparing loans or credit cards, always compare APRs — a loan with a lower interest rate but high fees can easily have a higher APR than one with a slightly higher rate and no fees. In a hardship situation, banks can sometimes drop your APR to 0% temporarily — see our Hardship Tier 1 guide for how to request this.