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401(k) Loan
An amount of money borrowed against the accumulated cash value of a 401(k) retirement plan upon approval of the employer. The borrower must pay back the loan within five years through payroll deductions. The loan carries a low interest rate, and the interest payments go back into the retirement account. Borrowers often use 401(k) loans to pay off credit card debt.
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401(k)
A retirement savings plan sponsored by an employer that allows the employee to set aside money for retirement. Funds toward the plan are deducted from the employee's before-tax pay, with matching contributions from the employer. The accrued funds are not taxed until the money is withdrawn.
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Adjustable Rate
The variable percentage a borrower pays for the use of money that may increase or decrease throughout the life of the loan. Here are some common forms of consumer loans and credit extensions that carry an adjustable interest rate:
- Home Equity Lines of Credit
- Student Loans
- Adjustable-Rate Mortgage (ARM)
- Credit Cards
Amortization
The repayment of a debt with prioritized installments. An amortization schedule is often used to illustrate the interest and principal payments on a home equity loan for debt consolidation. Below is an example of a amortization schedule:
| Month | 1 | 2 | 3 | 4 | 5 | 6 |
| Payment | 208.84 | 208.84 | 208.84 | 208.84 | 208.84 | 208.84 |
| Principal Paid | 193.84 | 196.26 | 198.72 | 201.20 | 203.72 | 206.26 |
| Interest Paid | 15.00 | 12.58 | 10.12 | 7.64 | 5.12 | 2.58 |
| Total Interest | 15.00 | 27.58 | 37.70 | 45.34 | 50.47 | 53.04 |
| Balance | 1006.16 | 809.90 | 611.18 | 409.98 | 206.26 | 0.00 |
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Asset Liquidation
The process of selling a debtor's assets or property to pay off creditors. This process is associated with Chapter 7 bankruptcy. At filing, the debtor provides a list of assets to a bankruptcy trustee who determines which items to sell and compensate creditors. The long-term effect of Chapter 7 liquidation is a negative mark on the filer's credit record that exists for a minimum of 10 years.
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Assets
A person's owned possessions that carry value. Assets are often characterized by liquidity, the ability to covert to cash in a short time without loss. Here are some specific types of personal assets:
- Automobile
- 401(k) Account
- Boat
Bad Credit
A term identifying a person with below average credit resulting from default or late payments on previous debts. Bad credit can influence many aspects of a person's life, and an increasing number of businesses are screening customers based on their credit history.
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Bad Credit Debt Consolidation
A person with a low credit score obtains a loan or line of credit to replace multiple debts at a low interest rate and monthly payment. Few financial options exist for a borrower with bad credit, so this method of debt relief can by risky and often result in additional debts incurred by the borrower.
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Bad Debt Consolidation Loan
An advancement of money for someone with damaged credit to finance multiple debts. A loan issued to a borrower with poor credit will usually carry unfavorable terms and conditions, such as a high interest rate, extended repayment term and predefined rate adjustments.
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Bad Debts
The term used to describe items purchased on high-interest credit cards that quickly depreciate in value. The buyer continues to make partial payments on the credit card with interest each month, while the item loses value. The amount paid for the item continues to increase with each payment.
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