The words you will hear, in plain English
Definitions only. Nothing here is advice about your situation, and the entries that state a legal rule name where that rule comes from.
Debt
APR
Annual percentage rate. The yearly cost of borrowing, expressed as a percentage. A variable APR changes with an index interest rate, such as the prime rate; a fixed APR does not move with an index, though it can still be changed with notice. Source: Consumer Financial Protection Bureau.
Minimum payment
The smallest amount a card issuer will accept in a billing cycle to keep the account current. Paying only the minimum keeps the account in good standing. It does not mean the balance is meaningfully reducing.
Principal
What you actually borrowed, as opposed to the interest charged on it. Interest is calculated on the principal, which is why a payment that mostly covers interest leaves the principal close to where it was.
Charge-off
When a creditor decides a debt is unlikely to be collected and writes it off its own books for accounting purposes. The debt does not disappear and you can still be pursued for it.
Collection account
An account that has been passed or sold to a debt collector. The collector, not the original creditor, is who you deal with from that point.
Debt validation
Your right to ask a collector in writing to verify a debt. Under the Fair Debt Collection Practices Act you generally have 30 days from the collector’s first communication, and collection activity pauses while they verify. Source: 15 U.S.C. 1692g.
Time-barred debt
A debt old enough that the legal window for suing over it has passed. It does not mean the debt is gone, and in some circumstances making a payment can restart the clock.
Secured and unsecured debt
Secured debt is backed by something the lender can take if you stop paying, such as a car or a house. Unsecured debt, including most credit cards, is not.
Debt consolidation
Combining several debts into one, usually with a single payment. It changes the structure of what you owe. It is not the same as reducing it.
Debt settlement
Negotiating with a creditor to accept less than the full balance. Outcomes vary by creditor and by individual circumstances, and there are tax and credit implications worth understanding first.
Debt management plan
A structured repayment plan, usually administered by a third party, in which you repay the full balance on adjusted terms.
Estate
Probate
The court process for transferring a deceased person’s property. Whether it is needed depends on the amount and type of property owned. Source: California Courts Self Help Guide.
Will
A document saying who receives what and who is in charge of carrying that out. It gives instructions for a court process rather than avoiding one, and it is the only place a guardian for minor children is nominated.
Living trust
An arrangement holding property during your lifetime and passing it on afterwards, without a court process for the property actually inside it. It does not shelter you from your own creditors, and it holds only what has been retitled into it. Source: Superior Court of California, County of Alameda.
Funding a trust
The act of retitling property into the trust’s name. An unfunded trust is a document about property it does not hold. This is the most common gap in an otherwise sound plan.
Pour-over will
A will used alongside a trust, catching anything that was never retitled into it. California courts advise signing one with a living trust, on the assumption that things get left out.
Executor, or personal representative
The person responsible for carrying out a will and dealing with the court process.
Trustee and successor trustee
The trustee manages the property in a trust. The successor trustee is who takes over when the original trustee dies or can no longer act.
Beneficiary designation
The named recipient recorded directly on an account or policy. These often pass outside a will entirely, which is why an out-of-date designation can quietly override a carefully written plan.
Power of attorney
A document authorising somebody to act on your behalf on financial or legal matters while you are alive. It ends at death, which is where the will and trust take over.
Advance health care directive
A document recording your wishes for medical care and naming who speaks for you if you cannot. It covers decisions about you, not about your property.
Intestate
Dying without a valid will. The state’s own default rules then decide who receives what, and those rules may not match what anybody expected.
Lending and rates
Prime rate
A widely published benchmark interest rate that many variable-rate consumer products move with.
Underwriting
The lender’s assessment of whether to lend, on what terms, and at what rate.
Origination fee
A charge for setting up a loan, often taken from the amount advanced rather than billed separately.
Credit utilisation
How much of your available revolving credit you are using. It is one input among several into credit scoring models.