Annual Percentage Rate (APR)
The APR is the cost of your loan expressed as a yearly percentage rate. The law requires that the APR appear in 18-point font on most credit card applications so that it is easily seen.
Something you own that earns money or increases in value, such as cash in savings accounts, stocks, bonds, a house.
Auto insurance (also known as car insurance or motor insurance) is a type of property insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident.
Bankruptcy is a legal proceeding that adjusts the debts of individuals who cannot meet their credit obligations. Although bankruptcy eliminates most debts, certain back taxes, child support, alimony, and student loans must be paid. With a bankruptcy on your credit report, you will pay higher rates and receive less favorable terms on loans in the future. A new law requires that you must get credit counseling before you can file for bankruptcy. Bankruptcy is very serious and stays on your credit record for 7 to 10 years. It should be used only as a last resort.
When you purchase a bond, you are essentially loaning money to a corporation or to the government for a certain period of time, called a “term.” The bond certificate promises the corporation or government will repay you on a specific date with a fixed rate of interest.
A budget is a step-by-step plan for meeting expenses in a given period of time. It is also called a personal spending plan.
A cash advance is a service provided by lenders, such as Payday lenders, and most credit card and charge card issuers that allows you to borrower cash. Credit card and charge card issuers allow you to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit. Since the advance is really a loan, interest is charged from the date of the advance.
Certificates of Deposit (CDs)
CDs are accounts where you leave your money for a set period of time called a term, such as six months or one, two, or five years. You usually earn a higher rate of interest than in a regular savings account. The longer you promise to keep your money in a CD, the higher the interest rate. Be sure to think about your cash needs before opening a CD because you will pay a penalty if you withdraw your money early.
Collateral is property you promise to give to a creditor if you do not repay your loan. For example, your car is collateral on a car loan, and your house is collateral on a home loan. A loan that requires collateral is called secured credit.
A collection account is a past-due account that has been referred to a specialist to collect part or all of the debt.
Consumer Installment Credit
A consumer installment credit is a loan used to pay for personal expenses for you and your family. Examples are automobile loans and unsecured loans for short-term needs, such as buying a computer.
Credit is money you borrow to pay for things in exchange for a promise to pay back the money you borrowed plus an additional amount. The extra amount is called interest and is the cost of credit. Credit is usually referred to as a loan.
This is a service offered by reputable credit counseling organizations that advise you on managing your money and debts, and help you develop a budget. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you and help you develop a personalized plan to solve your money problems.
Credit Life Insurance
Credit life insurance is a type of life insurance that helps repay your loan if you should die before the loan is fully repaid. This is optional coverage. Although the insurance is purchased by consumers, the benefit payment goes to the company financing the purchase to pay off a debt.
A credit report, also known as a credit history, is a record of how you have paid your debts. It tells creditors who you are, how much debt you have, whether you have made payments on time, and whether there is negative information about you in public records.
Credit Reporting Agencies
The three credit reporting agencies are Equifax, Experian, and TransUnion. These agencies receive information from a variety of creditors, usually monthly, about whether you are making loan payments on time.
Debt Management Plan (DMP)
If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts (such as credit card bills, student loans, and medical bills) according to a payment schedule the counselor develops with you and your creditors.
Direct deposit is a method your employer can use to give you your paycheck. Your paycheck is electronically transferred and directly deposited into your account. You will not receive the check in the mail. Your payroll check statement is mailed to your home address or given to you by your employer. The money is immediately available. Some banks will not charge monthly fees if you use direct deposit.
A dispute letter is the letter you write to a credit reporting agency when you believe there is an error in your credit report. The credit reporting agencies are required to conduct an investigation within 30 days of receiving your letter.
Diversification means you spread the risk of loss in a variety of savings and investment options. It is the concept of “don’t put all your eggs in one basket.”
Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act (ECOA) protects consumer rights throughout the loan process. Lenders cannot discourage you from applying for loans based on certain characteristics. ECOA promotes the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, age, or receipt of public assistance income, or exercise of rights under the Consumer Credit Protection Act.
When referring to a home, equity is the difference between how much the house is worth and how much debt (loans) you have on the property.
Fair Credit Billing Act (FCBA)
The Fair Credit Billing Act requires creditors to promptly credit payments and correct billing mistakes for open-ended accounts such as credit cards. It also allows you to withhold payments on defective goods.
Fair Credit Reporting Act (FCRA)
If you are denied a loan or credit because of information in your credit report, the Fair Credit Reporting Act requires that the lender notify you of this. This notice is usually combined with the notice denying the loan or credit.
Fair Debt Collection Practices Act (FDCPA)
The Fair Debt Collection Practices Act helps eliminate abusive debt collection practices such as contacting you at any unusual time or place; contacting you at work if you have informed a debt collector not to call you there; and using threats of violence or other criminal means to harm you or your property.
Fees are charged by financial institutions for activities such as reviewing your loan application and servicing the account.
The Fair Isaac (FICO) score is a number calculated using a computer model. The information from your credit report is used to determine your FICO score. The FICO score is what most lenders use to assess how deserving you are of their credit. They range from about 300 to 900.
The total dollar amount the loan will cost you. It includes items such as interest, service charges, and loan fees.
Financial goals are specific long- and short-term objectives you would like to achieve that require money. Your financial goals guide your future plans and savings decisions.
A fixed expense is a cost that does not change from period to period or that changes only very slightly. Fixed expenses are usually paid on a regular basis, such as week to week, month to month, quarter to quarter or year to year. Examples of fixed expenses are mortgage or rent payments, car payments, loan payments.
Foreclosure is a legal proceeding initiated by a creditor to take possession of collateral (usually a home) that secured a defaulted loan.
Garnishment is a process granted by a court order by which a creditor obtains directly from a third party, such as an employer, part of an employee’s salary to satisfy an unpaid debt. Part of the employee’s salary is taken out in each pay period until the debt is fully paid.
Gross income is the total income you receive before taxes and other deductions have been taken out of your check.
Health insurance is a general term for insurance against loss due to sickness or bodily injury. It typically includes coverage for expenses such as doctor visits and hospital stays, and can cover normal and preventive care such as check-ups, prenatal and baby care.
Homeowners insurance, also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.
Home Equity Loan
Home equity loans are secured by a borrower’s property. The amount of equity is the value of the property minus the debt. Home equity loans generally can be used for any reason.
Home Purchase Loans
Home purchase loans, also called mortgage loans, are made for the purpose of buying a house. These loans are secured by the house you are buying.
Home Refinance Loan
Home refinancing is a process by which an existing home loan is paid off and replaced with a new loan.
Identity theft occurs when thieves steal your personal information, such as your Social Security number, birth date, or credit card numbers. The thieves might then open a new credit card account using your name, birth date, and Social Security number or open a new bank account in your name. If bad checks are written or bills are not paid, it will show up on your credit report.
Income is money that comes to you from:
- Public assistance – which might include Temporary Assistance for Needy Families (TANF) or Food Stamps.
- Child support or alimony.
- Interest and dividends.
- Social Security.
- Other sources, such as tips.
Individual Retirement Account (IRA)
An Individual Retirement Account, or IRA, is a retirement savings plan that allows you to contribute (or invest) money up to a set maximum dollar amount. The contributions may be tax deductible. You pay taxes when you retire and withdraw the money.
Interest is the amount of money financial institutions charge for letting you use their money. The interest rate can be either fixed or variable. Fixed rate means the interest rate stays the same throughout the term of the loan. Variable rate means the interest rate might change during the loan term, as written in the loan contract.
A savings option purchased for future income or financial benefit.
A judgment is a court order requiring a debtor to pay money to the creditor. The judgment places a security lien on the debtor’s property until the judgment is satisfied (the debt is repaid). It remains on the credit report for 7 years from the date it was filed.
A liability, also commonly called a debt, is money that you owe.
A lien is a creditor’s claim against property to secure repayment of a debt.
Life insurance is a form of insurance on the life of a person. It protects against the loss of income if the person (insured) were to pass away. If the insured dies, the insurance policy pays out a sum of money to the policyholder (such as a person's family).
Pay-day loans are small, short-term cash advances, usually $500 or less. They are typically made to people who need money right away and plan to pay it back with their next paycheck. They are also called payday advance or paycheck advance.
Money Market Accounts
A money market account is one that usually pays a higher rate of interest than a regular savings account. Money market accounts usually require a higher minimum balance to earn interest, but they also pay higher rates for higher balances.
Monthly Income and Expense Worksheet
Preparing this worksheet will help you determine how much money you have coming in, how much is going out, and whether or not you have enough income to pay your bills and expenses each month.
A mutual fund is a professionally managed collection of money from a group of investors. A mutual fund manager invests your money in some combination of various stocks, bonds, and other products. The fund manager determines the best time to buy and sell the products in the fund. By combining your resources with other investors in a mutual fund, you can diversify even a small investment, which should reduce risk.
Net income is gross income minus Social Security, taxes, and other deductions have been taken out of your check.
Net worth is the value of what you own (assets) after subtracting what you owe (liabilities).
Predatory lending occurs when companies offer loans and other products, using certain marketing tricks, abusive practices, and loan terms that mislead or take advantage of borrowers.
Predatory Mortgage Lending
Predatory mortgage lending involves unfair, abusive, and unethical business practices during the loan origination process. This typically occurs when a mortgage company or broker pushes unjustifiably expensive refinance or home equity loans on homeowners. Generally, the purpose of these loans is to finance home improvements or to consolidate debts.
A retirement plan that meets requirements of the Internal Revenue Code, or Self-Employed Individuals Tax Retirement Act, that is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act requires that lenders provide you with accurate and timely disclosures of the costs of settlement, such as loan origination fees (points), broker’s commissions, and title charges. RESPA was designed to prevent abusive practices, such as kickbacks for loan referrals.
Refund Anticipation Loan (RAL)
Refund anticipation loans are short-term cash advances (or loans) against a borrower’s anticipated income tax refund. Taxpayers apply for RALs through their professional income tax preparer. Although the business preparing your income tax return will give you the money, you are actually receiving a loan from a bank or finance company.
Renters insurance is a type of property insurance that provides coverage to an individual living in a rented dwelling, apartment, or other location owned by someone else. Coverage is provided for loss or damage to the individual’s personal property such as furnishings, clothing, and other goods, and for personal liability caused by bodily injury or property damage to another person.
Retirement Plans—401(k) and 403(b)
401(k) plans are retirement plans that some private corporations offer their employees. A 403(b) plan is similar to a 401(k), but is offered to employees of some non-profit organizations. In both types of plans, you choose to deduct part of your paycheck and place it into the investment strategy you design. The plans allow you to choose different types of investments, depending on how much risk you want to take. The money you place into the account lowers your taxable income. The employer usually matches a portion of your contribution, sometimes up to 50 percent. The funds grow tax-free until the money is withdrawn during retirement.
Secured loans are loans in which you use an asset as collateral, which can be repossessed (or taken from you) by the lender if you do not repay your loan. An example of a secured loan is a home mortgage, where the house is used as collateral.
Social Security is a potentially valuable insurance plan. On some pay stubs, it is called FICA, which stands for Federal Insurance Contribution Act. Social Security benefits include retirement, disability, family, survivor, and Medicare benefits.
This is a tool in which you can record your daily spending. You can use this information to keep track of your spending over a period of time, say a month, so that you can see how you are spending your money.
When you buy stocks (shares), you become part owner of the company. If the company does well, you might receive periodic dividends. Dividends are part of a company’s profits given back to you when you own stock in the company. If the company does poorly, you might lose your money.
A tax lien is a claim against property or assets filed by the taxing authority for unpaid taxes. It remains on your credit report for 7 years.
Truth in Lending Act (TILA)
The Truth in Lending Act requires lenders to disclose the total cost of your loan, including the finance charge and the annual percentage rate (APR). In addition, it gives consumers the right to cancel certain types of home loans within three days.
An unsecured loan is credit that does not require collateral. Credit cards are examples of unsecured loans.
U.S. Savings Bonds
Savings bonds are one type of Treasury securities. They are a long-term investment option backed by the full faith and credit of the U.S. government. Purchasing these bonds is an easy way to save small amounts of money, and they are often purchased for a child’s education; however, they may be used for any purpose. Savings bonds can be purchased at a financial institution for as little as $25 or through payroll deductions.
U.S. Treasury Securities
U.S. Treasury securities are debt instruments. When you purchase a Treasury security, you are loaning money to the government. Treasury securities are backed by the full faith and credit of the U.S. government, which means the government guarantees interest and principal payments will be made on time. Treasury securities include:
- Savings bonds, which can earn interest for up to 30 years, but can be cashed after 6 months.
- Treasury bills, which mature in one year or less from their issue date.
- Treasury notes, which mature in more than a year, but not more than 10 years from the issue date.
- Treasury bonds, which mature in more than 10 years from the issue date.
Treasury bills, notes, and bonds are transferable, which means you can buy or sell them in the securities market. You can buy Treasury bills, notes, and bonds for a minimum of $1,000.
Variable expenses, also called flexible expenses, are costs that can change from month to month. Examples of variable expenses are telephone bills, gas and electric bills, credit card bills. You sometimes have control over how much you pay. For example, if you decide to lower your thermostat during the winter to save on heating costs, you will pay less than you did the month before.