Debt glossary
Plain definitions for terms used across our tools and guides. Debt payoff, DTI, utilization, and consolidation math are explained here — sibling sites own other topic clusters and we link when you have a natural next question.
Terms
- Debt-to-income ratio (DTI)
- Total required monthly debt payments divided by gross monthly income. Lenders use back-end DTI to judge room for a housing payment.
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- Credit utilization
- Revolving balance divided by credit limit, measured overall and per card. High utilization increases minimum payments and can affect underwriting.
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- Snowball method
- Pay minimums on all debts, apply extra to the smallest balance first for quick wins, then roll payments forward.
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- Avalanche method
- Pay minimums on all debts, apply extra to the highest APR first to minimize total interest.
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- Minimum payment trap
- When a payment covers little or no principal because monthly interest consumes most of the payment.
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- Debt consolidation
- Replacing multiple debts with one loan or line — unsecured (personal loan) or secured (HELOC, cash-out refinance).
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- HELOC
- Home equity line of credit — a revolving line secured by your home. Default risk includes foreclosure.
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- Cash-out refinance
- A new first mortgage larger than your current balance; proceeds pay off the old loan and provide cash to retire other debts.
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- Non-QM mortgage
- Mortgage programs outside conventional agency guidelines — often used when self-employment or complex income docs apply.
- Non-QM answers (full explainer)Self-employed or outside conventional guidelines?
- Life-change equity
- Financing questions after divorce, probate, or buy-before-you-sell — buyouts and equity splits beyond card payoff math.
- MyEquityTransition (life-change financing)Divorce, probate, or buy-before-you-sell?