Financial Resources Guide
Managing your finances shouldn’t be challenging! Learn everything you need to know about defining and reaching your financial goals.
Glossary of Financial Terms
Have you ever encountered an unfamiliar term related to your credit card, mortgage, or other financial information? You’re not alone! This A-to-Z glossary is a great start to understanding financial terminology.
Please note, these descriptions are a guide and are not legal definitions.
An adjustable-rate mortgage, or ARM, has a rate that is fixed for an initial term, then is reassessed and changed periodically based on the market. For instance, you might have a 5/1 ARM, meaning your rate will remain the same for a 5-year term, and then may change on an annual or semiannual basis for the remainder of your loan term.
Annual Percentage Rate
The Annual Percentage Rate (APR) is the yearly cost of borrowing money. APR includes the interest and fees charged over a one-year period. Many types of debt include an APR such as credit cards, auto loans, mortgages and personal loans. The APR helps borrowers choose credit card offers, mortgages, loans, etc.
When referring to debt, like a credit card or loan, a balance is the amount of money remaining to be repaid. When the term “balance” refers to a checking or savings bank account, the balance is the amount of money present in the account.
A balance transfer refers to moving a balance from one account to another account, which is often an account at another financial institution. It most commonly describes transferring outstanding debt owed on a credit card to an account held at another credit card company.
A balloon payment is the money owed on a loan when the loan term expires (usually after 5-7 years). When the term is over, the borrower must make a payment for the total amount remaining on the loan, or the borrower can choose to refinance the loan for new terms and rates. Balloon loans sometimes allow the borrower to transfer the remaining amount automatically into a long-term mortgage.
When an individual or a company has debt that cannot be repaid, declaring bankruptcy gives the individual or company legal protection from the debts. Bankruptcy is a legal process that can offer relief from some or all debts, depending on the type of bankruptcy.
A budget is a written plan that tracks monthly expenses and income. It is used to help manage finances, keep current with expenses and save money.
A card holder is the person who is issued a credit card, along with any authorized users. The primary card holder is responsible for credit card payments. Credit card holders are protected by federal lending laws that protect consumer rights.
A cash advance is a loan issued from a creditor. The most common cash advances are issued by a credit card or through a loan taken in advance of a paycheck. These types of cash advance loans charge special interest rates and fees on the amount of the advance. A credit card cash advance is typically the costliest credit card transaction compared to purchases or balance transfers.
Cash Advance Fee
A cash advance fee is a charge the borrower must pay for taking a cash advance loan. This fee could be either a one-time, flat fee that is owed at the time of the transaction or a fee charged as an annual percentage of the amount of the cash advance.
Collateral is an asset that a lender accepts as security for a loan. If a borrower defaults on their loan payments, the lender has the right to seize the collateral and sell it to recoup any losses. A common example of collateral on a loan is the vehicle financed with an auto loan.
Collections occur when a borrower is late on payments for a debt. The creditor or business may attempt to collect past-due debt or sell the debt to an agency that will attempt to recover the amount owed. The delinquent debt could be past due credit card payments, utility charges, medical bills, cell phone bills or other payments that are over 6 months past due. Collection agencies may attempt to recover past due debts by contacting the borrower via phone and mail.
A conventional mortgage or conventional loan is available through a private lender or two government-sponsored enterprises—Fannie Mae and Freddie Mac. Conventional loans are considered risky because they’re not guaranteed by the government. These mortgages can have strict requirements and higher interest rates and fees.
Credit refers to money that is borrowed that the borrower will need to repay, like an auto loan or credit card.
Credit Card Charge-Off
A credit card charge-off occurs when a borrower does not pay the full minimum payment on a debt for several months. At that time, the creditor writes it off as a bad debt. Note that a credit card charge-off doesn’t absolve a borrower of responsibility for the debt. Interest is still owed on the balance. Even after a credit card charge-off, the lender could turn over the account to a collection agency.
A person’s credit history develops as they borrow, repay and manage their loan payments, expenses and other transactions. The history may include information on current or previous loans, including amount borrowed, length of the loan, type of loan, and any payments that may have been missed. Future loans depend on a solid credit history, because lenders check your credit report, which includes credit history.
A credit report is a statement that has information about a person’s credit history, including loan payment history and the status of credit accounts. Lenders use credit reports to help them decide if they will loan money and what interest rate they will charge.
A credit score is a number based on a formula using the information in a person’s credit report. The result is an estimate of how likely that person may be to pay bills or repay loans. Lenders use credit scores to determine what interest rate they will offer on credit cards, mortgages, auto loans and more. If you pay all your bills on time and keep your accounts open for several years, you’re likely to be considered a safe bet for lenders. On the other hand, if you miss several payments on other loans, lenders may not want to risk extending credit to you in case you decide not to repay them.
A creditor is a person or institution that extends credit by lending a borrower money. The borrower agrees to repay the funds under agreed-upon terms.
Debt is money owed to a lender, such as debt from credit cards, an auto loan or a mortgage.
Debt consolidation means that a person’s debts, whether credit card bills or loan payments, are rolled into a new loan with one monthly payment. A debt consolidation loan does not erase debt.
Debt Management Plan
A debt management plan is when an organization works with creditors to reduce a borrower’s monthly payment and interest rates. People working through a debt management plan typically take three to five years to pay off debt. For those who team with a national nonprofit like GreenPath, a debt management plan is delivered by financial counselors certified by the National Foundation for Credit Counseling (NFCC) who receive training in compassion and empathy.
Borrowers receive debt counseling (also called credit counseling) when a trained credit counselor reviews their finances, debt and credit history to make personalized recommendations to help manage financial challenges. In the case of GreenPath, debt counseling is provided by certified financial counselors who take into consideration a person’s total financial picture, from outstanding credit card payments to overall financial health.
Debt settlement is a process of negotiating with creditors to accept a percentage of the full amount on debt that is charged off or severely delinquent. For-profit debt settlement companies operate to deliver profits to their organization. As part of the for-profit business model, debt settlement employees are often paid on a commission basis, based on the fees they collect from consumers.
A default on a loan occurs when a loan payment is not made by the borrower according to the payment terms of an agreement.
A loan deferment is when a lender agrees that a borrower can pause making monthly loan payments for a set amount of time. Loans that are deferred are not forgiven. The borrower still owes the money and must repay the debt.
When a borrower is late or overdue on making a payment, such as payments to credit cards, a mortgage, an auto loan or other debt, they are considered delinquent on the loan. A delinquent borrower may be charged a late fee for each missed payment.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act is a set of laws that protect consumer rights during the debt collection process.
Fannie Mae, the informal name of the Federal National Mortgage Association, is a U.S. government-sponsored enterprise that buys mortgages from lenders, bundles them into investments and sells them on the secondary mortgage market. Typically, Fannie Mae purchases home mortgage loans from big banks or commercial lenders.
A finance charge is the cost of borrowing money. The cost to a borrower includes interest and other fees. Lenders typically set finance charges as a percentage of the amount borrowed. Some lenders might set a flat-fee finance charge.
A fixed rate is an interest rate that stays the same for the life of a loan, or for a portion of the loan term, depending on the loan agreement. With a fixed-rate mortgage, your rate is set, or fixed, for the entire term of your loan, which is commonly 15 or 30 years. A fixed rate means your monthly payment will stay the same for the life of your loan—no surprises!
Forbearance is a process when a lender agrees to a lower payment or no payment for a temporary period. Forbearance is not loan forgiveness. After that time expires, the borrower may face higher payments, accrued interest or an extended loan term.
Foreclosure is a legal proceeding that happens when a borrower does not make payments on a secured debt. The lender may start legal foreclosure proceedings to seize the property associated with the debt. As an example, default on a mortgage could result in foreclosure and auction of the property.
Freddie Mac, the informal name of the Federal Home Loan Mortgage Corporation, is a U.S. government-sponsored enterprise that buys mortgages, combines them with other forms of loans and sells the debt on the secondary mortgage market. Typically, Freddie Mac purchases home mortgage loans from smaller banks or lenders.
A grace period is a set period in which borrowers do not have to pay finance charges or interest if they pay balances in full. Revolving credit card lending provides a borrower with a grace period. For instance, if you pay your credit card balance in full every month, you will not be charged interest on the balance.
Interest refers to the cost of borrowing funds, paid to the lender by the borrower. Interest also means the profit that accrues to those who deposit funds in a savings account or investment.
An interest rate is the fee lenders charge a borrower, calculated as a percentage of the loan amount. The percentage charged when borrowing money is known as the interest rate.
Loan forgiveness means a borrower is no longer obligated to make loan payments. With student debt loan forgiveness, the borrower must meet certain criteria such as actively serving in the military, performing volunteer work, teaching or practicing medicine in certain types of communities, or must meet other criteria specified by the forgiveness program.
Loss mitigation is the process when mortgage servicers work with borrowers to avoid foreclosure.
Loan modification is when a lender makes a permanent change to loan terms. The modifications could include changing the interest rate, type of loan or extending the time to pay the loan balance.
The minimum payment is a payment made on a loan or credit card that is specified by the lender as the smallest payment amount due. Borrowers can pay more than the minimum payment.
A mortgage is the loan a borrower takes on from a lender to purchase real estate.
Past due is when a payment has not been made by its due date. Borrowers who are past due will usually face penalties and are subject to late fees.
Private Mortgage Insurance
Private mortgage insurance is a type of mortgage insurance that might be required for borrowers with a conventional home loan. Private mortgage insurance protects the lender in the event a borrower stops making payments on the loan.
Reinstatement refers to a lump sum payment that makes a previously past-due loan account current when the borrower pays everything that is owed. This payment would include any missed payments and fees.
A repayment plan is a written agreement for borrowers who are past due on loan payments. This option allows the borrower to pay the late amount as a smaller addition to the regular monthly payment, spread out over several months.
Revolving credit is credit that can be used, paid down, and reused up to a predetermined credit limit. When the balance is paid down, that money is once again available for use. Revolving credit may take the form of credit cards or lines of credit with other lenders.
A secured debt is a loan that allows the lender to seize the asset or collateral used to acquire the debt to repay the loan in the event of default. Examples of secured debt are mortgages and auto loans. In these cases, the item being financed—the house or vehicle—is used as collateral.
A short sale is when a homeowner in financial distress sells property for less than the amount due on the mortgage.
Unsecured Debt/Unsecured Loan
Unsecured debt or an unsecured loan is a loan that is not backed by an asset or collateral. It is considered riskier than secured debt. The interest rate for unsecured debt is normally higher than for secured debt.
Understanding Your Credit
Your credit is analyzed by financial institutions and lenders to determine how much money you may borrow for a loan or credit card. What does your score mean, and how do lenders—and even landlords and employers—use it to determine their decision? Here’s how.
How is My Credit Score Calculated?
Credit scores are based on your credit report—a history of what you’ve borrowed, how you’ve paid and more. Five factors are considered for your score:
Payment History (35%)
Pay your debts on time. This is the single most important factor of your credit score.
Amount Owed (30%)
A ratio of how much credit you’re using to how much overall revolving credit you have. Avoid using a lot of your available credit; this may signal to banks that you are at a higher risk for defaulting.
Length of Credit History (15%)
A ratio of how much credit you’re using to how much overall revolving credit you have. In general, a longer credit history will increase your score.
Credit Mix (10%)
The types of loan accounts you have, like credit cards, student loans, auto loans and mortgages. It’s beneficial to have different types of credit.
New Credit (10%)
The number of “hard” inquiries to your credit, which happen when you open or apply for a new credit account. Avoid opening several credit accounts in a short period of time; this can represent a greater risk to the lender (especially for those without a long credit history).
The higher your credit score, the better.
A high score indicates lower perceived risk to lenders.
Credit Score Ranges
Steps for Improving Your Score
Looking to improve your credit? Building stronger credit takes time. But with patience and a commitment to managing your credit over time, it can be done:
- Get your current credit report.
Get your credit report to see where you currently stand and understand what potential lenders are seeing.
- Reduce the amount of debt you owe.
Try paying off your highest-interest debt first.
- Start practicing your new healthy credit habits.
Open new accounts sparingly, manage your credit card use, make payments on time and keep your revolving loan balances low to start seeing an improvement in your credit score.
Setting a budget and developing a spending plan is a great way to relieve uncertainty and stress while meeting your short- and long-term financial goals.
Use this worksheet to calculate your monthly expenses and income for an idea of what you have to work with, what your commitments are and what you have remaining to devote to your goals.
Step 1: Calculate Your Income
Figure out how much you get paid each month after taxes and add it to the table below.
- Weekly pay: multiply your paycheck by 52, then divide it by 12
- Bi-weekly pay (every two weeks): Multiply your paycheck by 26, then divide it by 12
- Inconsistent pay schedule: If your pay is not on a consistent schedule (e.g., seasonal work or side income), take last year’s total income and divide by 12 for an estimate of your average monthly income
|Paycheck (income after taxes, benefits and check-cashing fees)||$|
|Other income (e.g., side jobs, child support)||$|
|Total monthly income||$|
Step 2: Calculate Expenses
Record your expenses using the table below. For expenses that change from month to month (such as utilities), use your average spending based on previous months’ bills.
|Housing||Rent or mortgage||$|
|Renters or homeowners insurance||$|
|Utilities (e.g. electric, gas, water)||$|
|Internet, cable and phone||$|
|Other housing expenses (like property taxes)||$|
|Food||Groceries and household supplies||$|
|Other (e.g., meal subscriptions)||$|
|Transport||Public transit (e.g., bus, taxi, ride-sharing)||$|
|Car maintenance (e.g., oil change, new tires)||$|
|Car payments (e.g., insurance, auto loan, lease)||$|
|Other transportation expenses (e.g., parking, tolls)||$|
|Health||Prescriptions and medications||$|
|Health or life insurance (if not deducted from paycheck)||$|
|Other medical expenses (e.g., copays, glasses, contacts)||$|
|Personal & Family||Childcare (e.g., daycare, babysitter)||$|
|Money given or sent to family (e.g., gifts, child support)||$|
|Clothing and shoes||$|
|Entertainment (e.g., movies, concerts)||$|
|Subscriptions (e.g., streaming services, music, mobile apps)||$|
|Pet care (e.g., food, boarding, veterinarian, medication)||$|
|Other personal/family expenses (e.g., toiletries, haircuts)||$|
|Other||School costs (e.g., supplies, tuition, student loans)||$|
|Other debt payments (e.g., personal loans, credit cards)||$|
|Savings (e.g., emergency funds, vacation savings)||$|
|Other expenses or fees||$|
|Total monthly expenses||$|
$ Budget surplus/defecit
If your income is greater than your expenses, this is a surplus; use this money to save for goals or pay down debts!
If your expenses are greater than your income, this is a budget deficit. Try reducing some expenses, like streaming services or entertainment, to ensure you’re not spending more than you earn.
Teaching Kids About Money
Talking to your kids about healthy money management now will set them up for a lifetime of financial success. Not sure where to start? Try these handy tips for teaching your little ones about smart money habits!
Lead by example.
A study by the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. Little eyes are watching you. If you’re slapping down plastic every time you go out to dinner or the grocery store, they’ll eventually notice. Or if you and your spouse are arguing about money, they’ll notice that too. Whatever you do now, they’ll be much more likely to follow it when they get older.
Allow them to earn commission.
An allowance is different than commission. An allowance teaches the mindset that you’ll get money regardless of what you are doing. A commission is money that you earn. The more chores you do—and the better you do them—the more money you’ll earn.
Show them that stuff costs money.
You’ve got to do more than just say, “that pack of toy cars costs $5.” Help them grab a few dollars out of their jar, take it with them to the store, and physically hand the money to the cashier. This simple action will have more impact than a five-minute lecture.
Teach them about opportunity cost.
Opportunity cost is just another way of saying, “If you do this, then you won’t be able to do this.” If you want to have this toy, you won’t be able to buy that game. Ask them what they are trading their money for. It matters!
Model a planned approach.
If your child always gets something when you bring them to a store, then they won’t learn the value of saving for that item over time. It’s important to teach them how to save, so when they do buy something it will be more meaningful.
Enjoy free activities.
Show your kids there are ways to have fun without spending a dime! Do free activities, like a bike ride in your neighborhood or a picnic in the park.
Open a joint account.
If you have a teenager, set them up with a simple checking and/or savings account. This takes money management to the next level and prepares them for managing a much heftier account when they get older.
Start a college savings fund.
Is your teen working a summer job? Perfect! Take a portion of that (or more) and put it in a college savings account. Show them the account so they can see the power of compounding interest and start to plan for college expenses.
Teach them about credit.
As soon as your kid turns 18, they’ll get hounded by credit card offers—especially once they’re in college. Teach them how to properly use credit now so they’re set up for success in the future.
Encourage them to get a job.
High schoolers have plenty of free time, especially during school breaks. If your teen wants some money, help them find a part-time job. A job allows them to see the value of working to earn money and to learn skills that they won’t get anywhere else.
Automate Your Savings
You may feel like saving money is a challenge. It’s easy to get off track with a purchase here and there, which can add up and result in saving less than you intended. But that doesn’t mean you can’t get ahead of the savings game.
Try automating your finances! This allows you to save toward long-term goals or build up an emergency fund without having to think about saving on a daily basis.
3 Ways to Automate
Start by deciding how much you can save each month. Every little bit helps!
- Set up an automatic transfer once a month.
Create an automatic transfer for a fixed amount (like $25, $50 or $100) from your checking account to a savings or investment account each month so you won’t forget to save!
- Direct deposit from your paycheck to savings.
Each pay period, have your employer deposit a certain amount into your savings account before the rest goes into your checking. That way, you won’t even know what you’re missing!
- Max out retirement benefits with your employer.
If your employer offers a retirement account, sign up and put in at least the minimum contribution to receive the full employer match. This is a great way to save for long-term goals like retirement.
Save Money on Debt—Automatically
Paying off debt? You can automate that, too!
- Never pay a late fee again.
Set up automatic payments toward your debt so you never have to worry about missing your monthly due date.
- Pay off your debt as fast as possible.
Maximize your budget for paying off debt faster and use automatic payments to help you stick to your schedule. Try rounding up your payment to the nearest hundred if you can—a little change will go a long way. The faster you pay off debt, the more you save on interest and fees.
- Save money by paying off debt.
If you look at your budget and find that you’re spending all your extra money on debt, like loan and credit card payments, you might want to make a debt payoff plan. Once you get your debt payments down, all that extra money can go into savings for short- or long-term goals!
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