Glossary of Terms

APR (Annual Percentage Rate): An interest rate, or the rate banks and credit card companies uses to calculate the interest they require you to pay. The rule of thumb is to make sure you have a low an APR as possible when getting a credit card.

Bankruptcy: If you declare bankruptcy, it means you have legally announced that you cannot pay off your debts. Although declaring bankruptcy does offer short-term relief from debt pressures, the long-term effects are usually devastating. Bankruptcy will eliminate credit card debts, but it cannot get rid of other types of debt, like taxes to the IRS, for example. The worst part: it will make it almost impossible for you to obtain a credit card, a home loan, a car loan, etc. Simply put, banks don’t want to trust you anymore.

Condominium: Like an apartment, except that you own a condo rather than rent one. Usually cost less than houses, and someone else will fix exterior items and maintain the outside upkeep.

Co-Op (Cooperative): Like a condominium, in which you buy a unit in the building, but instead you own a “share” of a co-up and by buying the share, you get the lifetime right to live in that unit. The entire cooperative building is owned by all the residents together, rather than each unit belonging to an individual owner. They usually cost less to buy than a condo or house, but they are also usually harder to sell, as it usually requires approval by all of the residents.

Credit Report: Before a bank or mortgage company will loan you the money to buy a house, they will look at your credit report. It’s like a report card, except it grades you on how well you spend your money, typically from making payments on major things, such as housing or cars. If you, or anyone else, ever applied for a credit card or rented an apartment, these activities are reported to a credit bureau. When a bank wants to know how well you handle your debts, and therefore decide to trust you or not with their money, a credit report is usually what they refer to. If you paid a bill late, declared bankruptcy, or otherwise, this will be known in the credit report.

Debt: An obligation to pay money. (See secured debt and unsecured debt)

Secured Debt: A type of debt you owe for something valuable that you purchase, such as a house, or a car, that can be taken back by the bank that loans you the necessary money to purchase it if you don’t make necessary payments.

Unsecured Debt: A type of debt you owe for something that is harder for the lender to get back should you be unable to make necessary payments. These are considered less, though still important debts, such as credit card debt. A credit card company can’t “take back” the dinner that you had on the credit card you’re using.

Down Payment: In nearly every situation, a necessary component to buying a house. A mortgage lender usually asks for part of the total value of the house from you on day one, typically anywhere between 5-10 percent, ideally more.

Interest: When you borrow money, it costs you money. This is how banks profit and survive. Usually, interest is a few pennies for every dollar you borrow per year. If you borrow $100,000, the difference becomes pretty significant.

Interest Rate: A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal.

Income Tax: Every year, by April 15th, All adult residents of the United States must pay an income tax to the government. This tax is calculated by counting up all the money you earned in a year, and multiplying that number by a percentage. If you’re a working adult, your company will take taxes out of your paychecks automatically (which are called deductions). Sometimes more money is taken out than is needed, in which case the government will send a tax refund; sometimes not enough money is taken out, in which you owe the government back taxes.

IRS (Internal Revenue Service): An agency of the government responsible for collecting taxes from the people, corporations, or other organizations. They mean business – should you ever receive anything from the IRS, follow whatever is asked.

Investment: Something you purchase with your money in the hopes that it creates a profit in the future. Such kinds of investments are stocks, a house, or a Roth account. Stocks are usually relatively risky on their own, but can be useful if you have had practice and training trading stocks. Houses are, typically, a secure investment and weather long-term dangers. A Roth account is typically the most secure of the three and can generate immense long-term weather is the investor is consistent with saving.

Landlord: A person who owns property to rent for others for a profit. Those paying rent for an apartment are not investing in anything, because their money goes straight to the Landlord, just as it would any other utility, such as electricity or water.

Mortgage: An agreement, or loan, between yourself and a lender. They typically last between 15 to 30 years, and are extremely strict in policy; miss one payment and you run the risk of giving your house up to your lender.

Mortgage (House) Payment: The monthly payment you make to your mortgage lender. This is considered among the most important payments you need to make if you own a home.

Principal: In this case, not the head of your school. This is the amount you owe the bank on a particular item, such as a house or car, minus your down payment. By taking out a loan, the principal is less than what you will end up spending for that item, because interest is added over time (which is the way the lender profits). If you buy a house on a 30-year mortgage, you usually end up paying three times the amount of the principal.