6 Terms You Should Know About Debt
There are some basic words that are important for understanding your debt and your debt relief options. Being knowledgeable is the best way to secure your personal financial goals.
Escrow- Basically, an escrow is a deposit of some form from one party to another party dependent on the completion of a condition, agreement, or event. When the buyer and seller relationship is established between two parties regarding a piece of property, there needs to be a set of terms and condition that are given to an outside, third party. This party member must be impartial and is furthermore referred to as the “escrow holder.” As such, the escrow holder is then responsible for making certain that the terms are carried out. In other words, escrow is kind of like the safe for all of the money involved in the sale of your property, or completion of a service.
Interest Rate– This is simply the amount charged and represented as a percentage of a principal amount, from lender to borrower in terms of assets. APR marks the “Annual Percentage Rate” of an individual—which notes the interest rate. Essentially, interest rate is the fee or charge that is given to the borrower for the loan, rental, or lease. Depending the risk of the particular asset or individual in question, the interest rate will either be high or low.
Loan Consolidation– Essentially, a loan consolidation is designed to lower the overall interest rate on an initial loan. It often involves combining various unsecured debts into a single, manageable loan, which ends up being much more advantageous for the debtor. A lower monthly payment is also often a main reason for opting to consolidate a loan.
FICO Score– A specific type of credit score that accounts for a substantial portion of the report that lenders use to determine an applicant’s credit risk—determining whether or not to grant the individual the requested loan. FICO is an acronym, which stands for Fair Isaac Corporation. Based on a mathematical model, a person’s FICO score is determined by five areas in credit risk payment history, the current debt of the person, and the types of credit used, new and old. A FICO will generally run between 300 and 850. A good credit score is considered a 650 or above. Going below 620 usually means you’re going to have a more difficult time trying to obtain financing with a favorable interest rate.
Garnishment– this word is an ugly one. You only hear it when drastic measures are being taken as a result of a debt collection. Basically, a court ordered garnishment grants a creditor extract funds from a debtor’s paycheck and/or take property of the debtor when they do not presently possess the property.
Debt Collector– A company or an agency that recovers funds that are owed on “delinquent” accounts. Debt collectors are typically hired by companies to retrieve outstanding balances from delinquent debtors—usually operating for a flat rate fee or in some cases, for a percentage of the overall amount that is to be collected. The FDCPA or, the Fair Debt Collection Practices Act ensures that debt collectors are strictly monitored. The FDCPA prevents debt collectors from utilizing unfair, abusive, or deceptive tactics in their pursuit of the debt collection process. For example, debt collectors are only allowed to make contact with a delinquent account during certain times of the day. They also cannot make idle threats against debtors for unpaid balances.