It’s estimated that three out of five Americans have credit card debt – and that’s just one form of debt. When you also factor in student loans, mortgages, and other forms of lending, it’s easy to see that our country is swimming in debt.
This is unfortunate because there’s a serious lack of education about how debt and lending work for many communities. A lot of individuals lack many of the basic definitions of such terminology.
For example, what do you call the ones who owe money to lenders? And are there any laws protecting these individuals?
If you want to discover the answer to these questions, you’re in the right place. This guide will give you a brief rundown of these important money definitions.
What Do You Call the Ones Who Owe Money to Lenders?
The official term for someone who owes other people money is a debtor. However, that term can sometimes change based on the context. For example, if someone borrows money from a financial institution in the form of a loan or mortgage, they’re referred to as a borrower.
Similarly, if the individual has debt in the form of a security like a bond, then they’re called an issuer. When you borrow money from an individual or financial institution, you’ll need to pay back that amount plus interest.
There’s an additional amount of money you also owe to the lenders: a percentage of the principal amount you borrowed. For example, let’s say you borrow $10,000 with a 6% interest rate.
In this example, you would need to pay back an additional $600 on top of the amount you borrowed. What’s the point of an interest rate? For starters, it ensures the lender makes a profit by providing you with the money.
However, along with collateral, it can also provide some protection to the lender if you aren’t able to make your payments.
What Is a Creditor?
A creditor refers to any entity that’s owed money by a debtor. This entity might be a private individual or a financial institution like a bank or credit union. The debt might be in the form of a loan, line of credit, or product/service.
A creditor needs to make the terms of their loan or line of credit known in a contractual agreement. This agreement needs to specify information like the amount borrowed, the amount of interest, and the specific terms of paying back the loan.
In some borrowing situations, the person can pay back the entirety of the loan at any time. In other cases, they’ll need to adhere to a strict payment plan unless they want to renegotiate the terms of their loan.
What Law Protects Debtors?
In the past, if an individual wasn’t able to pay their debts they would go to debtor’s jail. The good news is these institutions began to phase out around the end of the Civil War.
These days, debtors are protected by laws preventing them from going to prison if they owe money. Specifically, they’re protected through the Fair Debt Collection Practices Act (aka the FDCPA).
This prevents creditors from sending people to jail for things like unpaid credit card consumer debt, personal loans, and medical bills. However, it’s important to note it doesn’t provide debtors with complete protection.
You can still go to jail for some forms of unpaid payments owed. For example, if you haven’t paid taxes or child support, you might face jail time.
It’s also important to note the Fair Debt Collection Practices Act also provides additional protections. It dictates things like when, where, and how often third-party creditors can contact debtors regarding their payments.
How to Get Out of Debt
Debt can be one of the most stressful financial experiences people go through.
No one likes the idea of owing money you aren’t able to pay back. If you’re deep in debt some solutions can help you dig your way out in one way or another. In this section, we’ll briefly discuss them.
Debt Relief Plans
There are many different programs and non-profits out there that help individuals with debt relief and credit counseling. Just take this debt relief Tyler TX organization.
After some one-on-one counseling and a review of your finances, they provide you with a personalized action plan. Similarly, many individuals struggle with bad credit which can prevent any sort of upward mobility in their financial lives.
Credit programs can teach these individuals the basics of turning bad credit into good credit.
If you’re stuck in debt, these programs should be the first places you start. While they won’t work for everyone they’re much more preferable than some of the alternatives like bankruptcy.
If you can’t pay back your debts you can file a voluntary bankruptcy petition. We recommend getting in touch with a bankruptcy lawyer to find out which type is right for your specific circumstances.
If the court accepts your plan after you declare bankruptcy, it’s possible to get some of your debts discharged. However, this comes at a great cost. Bankruptcy can ruin your credit so it should always be saved as a last resort.
Debt Consolidation Loans
A debt consolidation loan is the process of taking all of your debts and wrapping them up into a neat monthly payment. By consolidating all your debts you make the process a lot easier to keep track of.
While these can be good options for some individuals, you do need to be careful with them. Many debt consolidation loans require you to put up collateral like your house or car. And if you’re unable to make payments you could lose these assets.
Appreciate Learning About Money Definitions? Keep Exploring
We hope this guide helped you answer the question, “Who are the ones who owe money to lenders?” along with other interesting tips. There’s no denying loans can be a complicated area for many individuals.
So if you’re still confused we recommend reaching out to a professional debt relief solution. Many not-for-profit resources can help you gain a better understanding while seeking solutions for the debt in your life.
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