Debt and Credit Glossary

Plain-language definitions used by the planner and guides. Product terms can vary, so your agreement remains the source of truth.

Annual Percentage Rate

A yearly expression of the price of borrowing. The way it becomes a charge on an account depends on the agreement and calculation method.

Average Daily Balance

A method many credit-card issuers use to calculate interest by averaging the balance for each day in the billing cycle.

Avalanche Method

A payoff order that sends money above required payments to the debt with the highest interest rate, then rolls that payment to the next-highest rate.

Balance Transfer

Moving debt from one credit card to another. The new card may offer a promotional rate, but fees, limits, and post-promotion terms vary.

Balance Transfer Fee

A charge for moving a balance. It may be added to the new card balance and should be included in any savings comparison.

Billing Cycle

The period covered by a credit-card statement. Its dates and length are shown on the statement.

Credit Utilization

The amount of revolving credit used compared with available revolving credit. Scoring models consider it, but there is no universal healthy threshold for every person or model.

Daily Periodic Rate

A rate used in some daily interest calculations. Issuers may derive it from the annual percentage rate using the day-count method stated in the agreement.

Debt Consolidation

Combining debts into a new credit product. It can change the rate, term, payment, and fees, but it does not automatically reduce the principal owed.

Debt Settlement

An attempt to resolve a debt for less than the full balance. It is different from consolidation and can involve substantial risks and fees.

Debt-to-Income Ratio

Monthly debt payments divided by gross monthly income. Lenders may calculate and evaluate it differently by product and underwriting policy.

Grace Period

A period in which qualifying purchases may avoid interest if the cardholder meets the agreement’s conditions, often including paying the statement balance in full.

Hard Inquiry

A credit-file request associated with an application for credit. Its score effect depends on the scoring model and the rest of the credit file.

Minimum Payment

The smallest payment required for the statement period. The formula varies by issuer and may change as the balance changes.

Origination Fee

A charge associated with making a loan. It may be deducted from the proceeds or included in the amount financed, depending on the offer.

Penalty Annual Percentage Rate

A higher rate that may apply after specified account events. The trigger, amount, and duration depend on the agreement and applicable law.

Principal

The amount owed before future interest and fees. A payment may be divided among interest, fees, and principal.

Promotional Period

A limited period with special terms, such as a lower rate. The written offer states its duration and what happens afterward.

Snowball Method

A payoff order that sends money above required payments to the smallest balance, then rolls that payment to the next-smallest balance.

Soft Inquiry

A credit-file request that is not associated with a formal application in the same way as a hard inquiry. Confirm the type of inquiry before authorizing a rate check.