The language of debt management

Knowing who’s who and what’s what can help you in paying off your debt.

Automated payments

Your lender or your bank might allow you to set up recurring monthly payments in advance. This may be a good strategy for paying off debt when you’re paying the same amount every month, such as on a mortgage or car loan. That way, you never forget to make a payment and can avoid late-payment penalties or fees, which can potentially lower your credit score.


A process by which you combine debts into one account. This is often done in an effort to lower your interest rate or simply to put debts together to create a single monthly payment for the borrower. Consolidation or debt transfer can sometimes come with fees, which are important to be aware of.

Credit card provider

The financial institution that issues your credit card. If you’re struggling to pay your credit card debt, you may be able to call the provider and work on alternative repayment means.

Credit counseling agency

A credit counselor is someone who can work with you individually to help you make a budget or create a plan for paying off debt. They may offer to enroll you in a debt management plan, in which you, the counselor and the companies you owe agree to a plan for repaying your debt. Then you deposit money into an account with the counselor, who then pays your bills.

Credit score

A number (typically between 300 and 850) assigned to you based on your credit history to help lenders determine how creditworthy you may be. Often, the interest rate offered to you on a loan or credit card may vary depending on your credit score.

Debt collector

A third party who is hired by an organization or company to collect money you owe. Debt collectors have to operate by certain rules, and they are not allowed to harass you or lie to you. If you send a letter to a debt collector requesting they stop calling you, they are required by law to do so, though that does not prevent them from filing suit against you.

Debt relief service/debt settlement service

A debt relief service is an organization that will charge you a fee in exchange for working with one or more of your creditors. Debt settlement may have income tax consequences and may have a negative impact on your credit score.


An option offered by some student loan lenders that allows the borrower to wait a certain amount of time before making payments. During deferment, interest typically does not accumulate on the student loan debt, though it’s important to check the specific terms of your loan.


An option offered by some student loan lenders that allows the borrower to pause payments due to hardship. Interest typically still accrues on student loan debt during forbearance, which adds to the total amount due.

Interest rate

A percentage used to determine how much interest you pay on a loan or debt. The higher the interest rate, the more you will be charged in interest, which gets added to your principal (the original amount you borrowed) to determine how much you owe in total.

Loan servicer

The company that handles your loan on a day-to-day basis and that you will submit payments to. This may be different from the institution that lent you the money to start with.

Minimum payment

The smallest amount you may pay on a debt—typically each month—to avoid penalties and keep your account current.


Fees associated with debt, usually for not making your payment on time.


The initial amount you borrowed. Interest is added to this to determine the total amount you owe.

Revolving debt

Debt that is carried from month to month and increases or decreases based on payments you make or additional purchases you make. A credit card is a common example of revolving debt.

Secured debt

An amount you owe that is backed by collateral, or an actual item. Mortgages and car loans are secured debts because they are backed by property that has value, which makes them a lower risk to the lender and may result in a lower interest rate for you.

Tax-deductible interest

Interest charged to you on a loan that you can claim as a deduction on your federal income taxes. Student loan interest and mortgage interest may be taxdeductible depending on your income and other factors.