Gnomenclature

A 401(k) plan is a type of defined contribution plan offered by a corporate employer. In it, participants get to choose how much they put into the plan and how that money is invested. The employer may also contribute to the plan on the employee’s behalf.

529 plans are tax-advantaged savings plans for educational expenses. They can be used to accumulate money for educational costs or to prepay tuition at a particular institution. Contributions to 529 plans are not tax-deductible, but investment earnings in these plans are exempt from taxation.

Account history is part of your credit record that affects your credit score. It includes the number, type, and age of any credit accounts you have. Older accounts help credit scores, while too many newer ones can drag your score down.

Actual cash value is the market value of a vehicle given its age and current condition. This can be especially important for insurance purchases or if you still owe money on an auto loan at the time you plan to sell the vehicle.

An annuity is an investment product designed to provide regular income. Money you pay into an annuity is invested and then paid out gradually over time. They may defer taxes on investment gains until the money is paid out. There are a variety of different annuities which can fit different retirement income needs. Whether or not they are a good deal comes down to comparing the ultimate payout with the amount of money that goes into them.

AP credit or Advanced Placement Credit provides course credits toward a college degree based on successfully completing approved elevated coursework in high school. AP credit can have significant financial value by allowing a student to earn enough credits to graduate from college sooner, just cutting down on the cost of attending school.

APR stands for “annual percentage rate.” It measures the cost of borrowing money as a percentage of the amount borrowed. It includes both interest charges and certain mandatory fees such as closing costs. It is helpful for comparing different loans that may have different combinations of interest and fee charges. However, it is important to check which fees the lender includes in the APR calculation.

Auto lease is a long-term agreement for the use of a vehicle. The term and monthly rate are specified in the lease term. Under certain circumstances, leasing may be more practical than buying a car. However, your payments do not give you any ownership of the vehicle, and it must be surrendered at the end of the lease period (or purchased if desired). There may also be restrictions governing the number of miles you can put on the vehicle and how you can use it during the period of the lease.

An auto loan is a loan specifically for the purchase of a vehicle. This type of loan has monthly payments which include both repayment of part of the amount borrowed and interest. The vehicle is used as collateral for the loan, which means the lender may take possession of it if you fail to make the loan payments.

Automatic enrollment is an employee retirement plan policy that directs a portion of an employee’s earnings to the company retirement plan unless they choose to opt out. It also directs those earnings to a default investment option unless they make another choice. Automatic enrollment is designed to get more employees saving for retirement unless they actively choose not to participate.

Bankruptcy is a legal process by which a court supervises the settlement of debts. This often involves creditors being forced to accept less than the full amount owed them, with the court deciding on the fairest way to distribute the debtor’s resources among the creditors. There are different types of bankruptcy which apply different approaches to the process, including the liquidation of the debtor’s assets and scheduled payments out of the debtor’s future income.

Base price is the listed price of the most stripped-down model of a car, without options. While knowing the base price can be useful for preliminary comparison purposes, cars are routinely shipped to dealers with a variety of options packages included. As a result, base price often is well below the price consumers actually pay.

A certificate of deposit is a type of deposit account designed to hold money for a specific amount of time. By committing your money for a predetermined period, you may be able to earn a higher rate of interest. However, you are also likely to face an early withdrawal penalty if you take money out before the CD term has expired.

Charge-off is the portion of an unpaid debt which a creditor has given up trying to collect. However, just because the creditor has written it off doesn’t mean you are off the hook. You are still legally responsible for that debt until the statute of limitations expires, and it will remain on your credit report for a long time.

Check-kiting is a term that describes an illegal practice of taking advantage of the fact that it takes checks a few days to clear in order to use the money in the interim. It involves deliberately writing a check for more money than you have in the account so you can temporarily use that money before ultimately replacing it in the account. This is different from an overdraft because it is done deliberately as a means of fraudulently using funds you don’t have.

Closing costs are expenses involved in the purchase of a property that must be paid upon legally completing the transaction. Both buyers and sellers may be subject to closing costs. Those costs may include a variety of fees, initial insurance premiums, property taxes, agent commissions and transfer taxes. An important part of buying a home is to make sure to have enough money available for closing costs at the time of purchase.

Collection accounts are unpaid accounts a creditor has had to refer to a collection agency. These are included in your credit record. Collection accounts are a red flag to potential lenders and a negative factor in credit scores.

Collision insurance is a type of auto insurance that covers you for damage to your vehicle in the event of an accident. This is typically subject to a deductible and limits on the insured amount. Also, collision insurance does not protect you from other types of damage or loss, such as vandalism or theft.

Comprehensive insurance is auto insurance that covers you from non-collision events beyond your control, such as theft, vandalism, windshield and other glass damage, fire, collisions with animals and damage due to severe weather. The coverage may be subject to deductibles and limits.

A conforming or non-conforming mortgage describes whether a home loan meets standards set by the Federal Housing Finance Agency. Those standards cover the size of the loan, the amount of the down payment and the pace of repayment.

Conforming mortgages are eligible for purchase by Fannie Mae and Freddie Mac, which helps lenders spread their risk and obtain more funds to make loans. Because non-conforming loans cannot be sold to Fannie Mae or Freddie Mac, lenders typically charge higher interest rates for them.

Cost of attendance is the total expense incurred by attending school. It may include tuition as well as room and board, transportation, and supplies. When planning to attend college or any other school, it is important to budget for the full cost of attendance beyond just tuition.

Cost of living is the amount of money necessary to meet a household’s lifestyle. Cost of living is very important for long-term financial planning. The cost of living can generally be expected to rise over time. Also, retirement expenses may be very different from non-retirement expenses and may also vary greatly through different stages of retirement.

Credit invisibility means you do not have enough of a credit record for a credit score to be calculated. New users to credit or people who haven’t used credit in a long time often face the problem of trying to establish credit without any kind of credit record.

Credit tiers are grouping of customers according to credit score. People with higher scores have a greater likelihood of having their applications approved and generally pay lower interest rates. Consumers are generally grouped together according to different ranges of scores. Lenders may use different score ranges to determine credit tiers but, as an example, scores over 800 would represent the top tier, scores from 720 to 800 the next-best tier, 670 to 720 the next, and so on. These tiers mean that a matter of a few points can make a big difference, if you happen to fall near the bottom or the top of a particular tier.

Credit utilization is the amount of your available credit that is currently in use. It is often expressed as a percentage. Another name for it is "balance-to-limit ratio."

If you have three credit cards with credit limits totaling $10,000 and balances totaling $3,000, your credit utilization would be 30%. Credit utilization is a factor in calculating credit scores, with high credit utilization being a negative factor.

Dealer financing is a loan or lease for a vehicle that is arranged by the dealer selling the vehicle. While this is convenient for a buyer, it is often possible to obtain better financing terms on a loan by shopping around among third-party lenders. Those loan terms can make a significant difference in the cost of buying a vehicle.

Debt avalanche is a debt-reduction strategy that focuses on paying off your highest-interest debts fastest. While you continue to make minimum payments on all your debts, you direct any extra money available to the debt with the highest interest rate. As this gets paid down, more of your payments would be able to go toward principal instead of interest. This accelerates your repayment rate and makes this the most cost-effective approach to debt repayment.

Debt consolidation combines all your debt into a single, larger debt that usually has a more favorable interest rate and/or lower monthly payment. This allows you to make a single payment each month and pay less money overall.

A debt management plan is a debt repayment plan worked out by a credit counseling agency. A credit counselor negotiates your payment terms with your various creditors. This negotiation often results in more favorable terms, such as more time to repay, reduced interest charges or waived fees. You then make a single monthly payment to the credit counseling agency, who distributes those charges to your creditors. Note that, even though many credit counseling agencies are not-for-profit, there is often a fee to cover the cost of administering these plans.

Debt settlement involves negotiating with your creditors to pay back debt at less than the full amount you owe. You promise to pay the settled-upon amount in full. You can handle debt settlement yourself or work with a third-party debt relief organization.