Credit Card Debt Consolidation Terms

Credit card debt consolidation involves negotiating with credit card companies to lower your interest rates and allowing you to pay a single larger payment that is then split up to pay each of your credit card balances in part. But underneath it, there is typically a loan involved. As such there are many terms that will be thrown out there during the discussions and in the paperwork. We felt this glossary might help keep you informed:

Adjustable-Rate Mortgage (ARM) - An ARM is a mortgage loan with an interest rate that fluctuates periodically according to market conditions. ARMs typically have an initial fixed-rate period of a few years.

Amortization - A payment schedule that spreads the interest and the principal across the term of the mortgage loan. At the end of the amortization, the full mortgage will have been paid.

Annual Percentage Rate (APR) - This is the annual cost of the mortgage loan. The APR includes interest, charges and fees. The APR will be printed in bold print in your loan agreement as dictated by federal law.

Credit Score - Developed by Fair Isaac Corporation (FICO), your FICO credit score is calculated using a mathematical algorithm based on your credit history. The result is a numerical representation of your credit history of between 300 (poor) to 850 (perfect).

Default APR - This is also commonly referred to as penalty rate. When you are late on your payments, your provider will increase your standard APR to a default amount. This can be applied to any and all outstanding balances you have on your credit card.

Interest Rate - The fee a borrower pays over the term of a loan over and above the principal of the loan for the service of borrowing the mortgage.

Nondischargeable debt - After bankruptcy, this is the debt that you will still be liable for and cannot be cleared in any way. This varies between the different types of filings - Chapter 7 versus Chapter 11 for instance. Fines related to criminal acts and unpaid taxes would fall into this category.

Universal default - This is when your lender changes the terms of a loan from the normal interest rate to the default rate. Many financial institutions will do this when they view you as more of a risk than when you began using their services.

Wage garnishment - This is most common in situations where a person has not paid their taxes or child support, but there are a number of instances where your wages could be garnished. It is a court-ordered mandate and will continue until the debt has been paid in full.

Zombie debt - For everything but murder, there exists a statute of limitations. This includes debts you owe to credit card companies or any other creditors. While you many not be legally obligated to pay them, debt collection agencies could still try to get the payment from you until the debt has been paid.