Credit & Debt Terms
Annual Percentage Rate (APR)
The yearly interest rate charged on borrowed money, including fees, expressed as a percentage. APR helps compare the true cost of loans or credit cards.
Credit Score
A numerical representation (typically 300-850) of your creditworthiness based on your credit history. Higher scores indicate lower risk to lenders.
Debt-to-Income Ratio (DTI)
A percentage calculated by dividing your monthly debt payments by your gross monthly income. Lenders use DTI to assess your ability to manage payments.
Secured Debt
Debt backed by collateral (e.g., mortgages, auto loans). If payments aren't made, the lender can seize the collateral.
Budgeting & Saving Terms
Emergency Fund
Savings set aside to cover unexpected expenses or financial emergencies, typically 3-6 months' worth of living expenses.
50/30/20 Rule
A budgeting guideline suggesting 50% of income for needs, 30% for wants, and 20% for savings/debt repayment.
Net Worth
The total value of your assets (what you own) minus your liabilities (what you owe). A measure of financial health.
Financial Services Terms
Debt Management Plan (DMP)
A structured repayment program where a credit counseling agency negotiates with creditors to potentially lower interest rates and consolidate payments.
Credit Counseling
Professional guidance to help individuals understand and improve their financial situation, often including budgeting and debt management advice.
Bankruptcy
A legal process for individuals or businesses that cannot repay their debts, offering either debt discharge (Chapter 7) or repayment plans (Chapter 13).
General Financial Terms
Compound Interest
Interest calculated on the initial principal and also on the accumulated interest of previous periods, causing wealth to grow exponentially over time.
Liquidity
How quickly an asset can be converted to cash without affecting its market price. Cash is the most liquid asset.
Principal
The original sum of money borrowed in a loan or invested, separate from interest or earnings.