The short answer

This glossary covers 25 common debt terms in plain language, grouped into what a debt costs (APR, interest rate, grace period), how an account behaves (revolving, installment, principal, minimum payment), how a payoff plan works (avalanche, snowball, cash flow method, debt-free date), and what happens when debt goes unpaid (delinquent, charge-off, collections, default). Use it as a reference while reading anything else about debt.

Terms about what a debt costs

APR, or annual percentage rate, is the yearly cost of borrowing shown as a percentage. Interest rate is closely related and sometimes used interchangeably, though APR can include certain fees on some products. Grace period is the window, often around the statement due date, during which no interest is charged on new purchases if you paid the previous balance in full. Deferred interest is a promotional structure where interest is charged retroactively on the full original amount if the balance is not paid off by a set date. Residual interest is interest that accrues between your statement date and the day you actually pay, which can leave a small balance even after you think you paid in full.

Terms about how an account behaves

Revolving debt is an open line, like a credit card, that you can borrow against repeatedly with no fixed end date. Installment debt has a fixed payment and a set term, like a car loan or mortgage. Principal is the portion of a payment that reduces the actual balance owed. Minimum payment is the smallest amount required to keep an account in good standing for that period. Amortization is the process of paying down a loan through scheduled payments that cover both interest and principal over time. Credit utilization is the percentage of your available revolving credit that you are currently using.

Terms about a payoff plan

Avalanche is a payoff order that targets the highest-APR debt first with extra payments. Snowball targets the smallest balance first instead. The cash flow method ranks debts by how much minimum payment gets freed up per dollar of balance paid off. A debt-free date is the projected month your balances would reach zero under a given plan. Debt to income ratio is your total monthly debt payments divided by your gross monthly income.

Building your own reference sheet

A glossary is more useful once it is applied to your actual accounts rather than read once and set aside.

  1. Pull one of your own statements and find as many of these terms on it as you can.
  2. Write your account's APR, minimum payment and whether it is revolving or installment next to each term.
  3. Note anything on the statement you still do not recognize and look it up separately.
  4. Keep the sheet next to your debt inventory for reference as you build a payoff plan.

Terms about unpaid debt and your credit

Delinquent describes an account that is past due on a required payment. Charge-off is when a creditor writes off a seriously delinquent balance as a loss on their books, though you generally still owe the debt after that happens. Collections refers to the process, often through a separate agency, of pursuing an unpaid debt after it goes delinquent. Default is a more serious failure to meet the terms of a loan, with consequences that vary by loan type. Credit report is the record of your credit accounts and payment history kept by the credit bureaus. Credit score is a number calculated from that report used to judge credit risk. Credit freeze restricts access to your credit report to prevent new accounts from being opened in your name. Settlement is an agreement to pay less than the full balance to resolve a debt, usually negotiated directly with a creditor or collector.

Worked example · illustrative numbers

Example: reading one statement using five of these terms

This is a hypothetical statement. A credit card shows a $1,800 balance, 24% APR, and a $54 minimum payment, which is revolving debt since the balance can be carried and the minimum changes with it. One month of interest at this APR is $1,800 times 0.24 divided by 12, which is $36.00. If $200 is paid instead of the $54 minimum, $36.00 covers interest and the remaining $164.00 reduces principal, bringing the balance to $1,636.00.

Put this into practice with Debtless

Debtless uses several of these terms directly: you enter balance, APR and minimum payment for each debt, and the Plan tab labels its methods Avalanche, Snowball and Cash Flow using the same definitions above. It does not track charge-offs, collections or your credit report.

Download Debtless on the App Store

Common questions

What is the difference between a charge-off and a default?

A charge-off is an accounting action a creditor takes on their own books after a balance is seriously delinquent, while default refers to failing to meet the loan's terms more broadly. You typically still owe a charged-off balance.

Is APR the same thing as interest rate?

They are closely related but not always identical, since APR can include certain fees along with interest depending on the product, making it often the more complete figure to compare.

Why does my balance sometimes go up slightly after I pay in full?

This is often residual interest, which accrues between your statement date and the day your payment posts. Paying a few extra dollars beyond the stated balance can help avoid a small leftover charge.

Where can I find more terms not covered here?

The CFPB maintains glossaries specific to credit cards and debt collection with additional terms and more detail than a short list like this one can cover.

Sources & further reading

General education for U.S. readers, not individualized financial, legal or tax advice. Examples are hypothetical; lender terms and actual interest calculations can differ. Check your current statements and agreements.

Published by Debtless with AI-assisted drafting. How this journal is made · Suggest a correction