Gnomenclature

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.

Debt snowball is a debt-reduction strategy for people who want to simplify their debt situation by eliminating individual debts as quickly as possible. The debt snowball approach focuses on directing any extra debt payments toward your smallest debts first. This allows you to reduce the number of different debts you have most quickly. While that may be satisfying, this may not be the most cost-effective approach.

Debt-free date is a target date by which all your current debt obligations are scheduled to be paid off. This may be based on a combination of the amortization schedule for loans and your current or planned repayment rate for variable payments or prepayments. Your debt-free date depends on your pace of repayments and whether you take on any additional debt.

Debt-reduction strategy is a plan for how to reduce the amount of debt you have. It should include both a schedule for repaying your current debts and a budget for reducing or eliminating the need to take on additional debt.

A decision framework can help you recognize the parameters of financial choices so you can see what works best in your situation.

Default is when you fail to make a payment on an amount you owe. If you show no signs of attempting to make a payment that is overdue, the lender may take legal action in an attempt to get the money or refer the matter to a collection agency. In addition to the additional charges that you may ultimately incur by defaulting on a debt, a default can do serious damage to your credit score.

A defined benefit pension is an employer-sponsored retirement plan that pays specified amounts to the employee after retirement. That amount is usually based on the employee’s earnings and time with the employer. The employer is responsible for funding and investing the plan to make sure enough money is available to pay employees their benefits when the time comes.

A defined contribution plan is a type of employer-sponsored retirement plan. Typically, it depends primarily on voluntary contributions by the employee, though an employer may also choose to make contributions. No specified amount of benefits are paid out. Instead, the value of an employee’s share of a defined contribution plan is based on the size of the contributions and investment earnings (or losses) on those contributions over time.

Deflation is a period of falling prices. While lower prices may sound like a good thing, widespread deflation is generally associated with a seriously weak economy.

Delinquency is a term used to describe payments that are overdue. Many creditors allow a 30-day grace period before late payments have consequences. Payments that are delinquent beyond the grace period may incur a late fee. Payments that are over 90 days late are considered seriously delinquent. This may result in referral to a collection agency, cancellation of your account or other serious consequences. Delinquent payments also may be reflected in your credit report and in your credit score.

Depletion rate is the pace at which you draw down money from a retirement plan. A key part of managing your finances in retirement is trying to make your resources last for the remainder of your life at least.

Measuring your depletion rate helps you assess whether you are taking money out too quickly. Caution must be applied in planning your depletion rate because you can’t be sure of how long your resources will need to last.

Depreciation is a general term for the loss of value that occurs after the purchase of an item. For automobiles, the steepest depreciation occurs immediately after a new vehicle is initially purchased.

Discretionary income (DI) is the money that is left over once you have paid all your bills and obligations. It’s the money that you get to decide when and how to spend or invest.

Disinflation describes a declining rate of inflation. Unlike “deflation,” it does not mean prices are falling, but instead it is used for periods when prices are rising at a slower rate, as when inflation slows from 8% to 4%.

Disposable income is the money you have available to spend after payment of all federal, state, and local taxes and any other charges mandated by the government. Disposable income is also often referred to as “net income.”

Donations are gifts of cash or other property for charitable purposes. If the recipient is a qualified non-profit organization, the donor may be able to claim a tax deduction for part or all of the gift. Donations may be made subject to specific instructions or given without restrictions.

Down payment is a portion of the purchase price which you pay up front when you are financing the rest of the purchase with a loan. Making a bigger down payment may help you qualify for a loan, and it may also allow you to get a better interest rate.

DTI ratio stands for “debt-to-income ratio.” It measures the proportion of your monthly debt payments to your monthly income. It is a metric lenders use to evaluate your ability to handle new loan payments. It is also something to keep in mind before you borrow, because it measures how much of your household income will be devoted to repaying debt.