Glossary of Online Debt Consolidation Terms
Get to know a few of the most important online debt consolidation terms. We'll define the terms you'll encounter the most in the consolidation process.
- Average daily balance - the most commonly used method for calculating cardholders' monthly payments. This number is computed by totaling the balance for each day in the cycle and dividing by the number of days.
- APR - annual percentage rate. The APR is the interest rate expressed on an annual basis and also reflects any fees and charges associated with the loan. Most online debt consolidation companies focus their efforts on making customers' APRs more affordable.
- Balance transfer - an ineffective form of online debt consolidation that moves the outstanding balance of one credit card to another, usually to capitalize on better interest rates.
- Consolidation - combining multiple debts, usually with high interest rates, into one payment or loan in order to save money and/or pay off the debt more quickly. Consolidation can take the form of a balance transfer, a home equity loan, or enrollment in a structured program.
- Delinquency - in reference to debt, delinquency indicates that the borrower is behind on payments or has failed to pay as agreed. Good candidates for consolidation should not be more than three months delinquent on their accounts.
- Home equity loan - also called a second mortgage, a home equity loan cashes out the difference between how much your home is worth and how much you owe on your mortgage. Home equity loans have a variety of uses, including debt consolidation.
- Minimum payment - the minimum amount a debtor must pay to avoid defaulting on the loan or account. The most common minimum payment among card issuers is 2% of the current balance. If you have trouble making your minimum payments, you are probably a good candidate for online debt consolidation.
- Secured debt - debt that is tied to physical property, such as a car, a house, a boat, etc. Examples of secured debt include home loans and auto loans. Online debt consolidation does not deal with secured debt.
- Unsecured debt - debt that is not linked to physical property, such as credit card debt, student loans, and medical bills. Online debt consolidation deals only with unsecured debt.
- Up-front fees - the expenses an online debt consolidation customer must pay before services begin. Up-front fees usually involve a set-up fee and some sort of commission, though this will vary by service.
Please visit our frequently asked questions page if you would like any of your questions properly answered.
