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Debt Terms Glossary

  • A

  • Accrued Interest

    This interest builds on itself until a debt is completely paid off. It is determined by the unpaid balance of the original loan.

  • Adverse Credit History

    Record that shows negative actions in a credit report like bankruptcies, delinquent accounts and foreclosures.

  • Alimony

    ordered obligation to offer financial support following a separation or divorce.

  • Amortization

    Reduction value of an asset determined by prorating its cost over a certain amount of time.

  • Annual Fee

    Charged once a year to cover administrative costs and ensure credit benefits on credit cards.

  • Annual Percentage Rate (APR)

    Amount shown as a percentage that represents yearly costs of borrowing over the term of the loan or credit card.

  • Arbitration

    Debt resolution using an impartial third party.

  • Asset

    An item of ownership that has exchange value.

  • B

  • Balance

    Amount available in an account. In terms of debt, the amount owed, not including payments already made.

  • Bankruptcy

    A legal procedure where the debtor’s assets are liquidated by the court to account for financial obligations. Although the debtor is able to start over, the negative action remains on the credit report for seven to 10 years.

  • Bankruptcy Trustee

    An individual who is licensed under federal law to administer Consumer Proposals and Bankruptcies through the Bankruptcy & Insolvency Act (BIA). The Trustee who is an Officer of the Court, acts in the interest of the creditors and their main fiduciary responsibility is to maximize the proceeds in an estate for the benefit of creditors (to the detriment of the debtor).

  • Better Business Bureau

    A private, non-profit organization that promotes ethical marketplace practices and offers resources to both businesses and consumers.

  • Broker

    The person who negotiates transactions between buyers and sellers for real estate.

  • C

  • Canada Revenue Agency (CRA)

    The Canada Revenue Agency, or CRA, is the federal government agency responsible for tax regulation and collection activities in Canada. Visit the CRA Homepage

  • Capitalization

    Adding unpaid interest to the original amount borrowed.

  • Certificate of Discharge

    This is a document a person receives on the date that his Bankruptcy is completed.

  • Certificate of Full Performance

    This is a document a person receives on the date that his Consumer Proposal is completed.

  • Closed-End Credit

    Loan or credit line where the amount borrowed is dispersed when the loan closes. A set date is given for when the loan interest and charges must be paid.

  • Collateral

    Property or assets a borrower pledges to secure repayment of a loan. Collateral may be seized if the borrower fails to repay the loan.

  • Collection Agency

    A company that attempts to collect money from consumers on behalf of creditors and obtains the majority of it's revenue from doing so. Some law firms and debt buyers also engage in high volume debt collection work.

  • Compound Interest

    The addition of interest to the principal sum of a loan.

  • Consumer Debt

    Money owed by consumers, rather than businesses or the government.

  • Consumer Proposal

    Is another government legislated option within the Bankruptcy and Insolvency Act, but is not bankruptcy. A debtor can make a proposal to their creditors to reduce the amount of their debts depending upon their situation. A repayment plan can often range from 20-50 cents on the dollar and can be repaid over a period of time extending no longer than five years.

  • Credit History

    Record showing consumer’s borrowing and repaid debt.

  • Credit Rating

    Is provided on a person's credit report. It is a designated rating number from 1 to 9 which shows how current you are with your payments to creditors. 1 is the best rating and 9 is the worst. There is also a letter designation, an 'R' or an 'I', in front of the number. 'R' means a revolving debt, like a credit card. 'I' means an installment debt, like a loan where the payment is always the same amount.

  • Credit Repair

    Process of improving your credit score through actions like negotiating with creditors and disputing errors on your report.

  • Credit Reporting Agency

    A For-Profit company that gathers information on a consumer's creditworthiness, in order to provide a credit report to credit grantors or the consumer themselves. In Canada, the two reporting agencies for consumers are Equifax and TransUnion.

  • Creditor

    Person or organization that lends money to consumers or businesses.

  • Creditworthiness

    A potential borrower’s ability to pay back credit.

  • D

  • Debt

    Money owed by a borrower.

  • Debt Advisor

    Specially trained individuals who deal with the debtor's financial problems by explaining their options and advising the debtor through the process of government legislated or voluntary options to help regain control of their finances.

  • Debt Consolidation

    The combination of multiple debts into a single debt with one interest rate.

  • Debt Management Plan

    A credit counsellor negotiates interest rates with creditors to make an individually tailored plan to reduce the borrower’s unsecured debts over a certain period of time.

  • Debt Settlement

    Process of negotiating with one or more creditors to reduce the balances owed by debtors. It’s also known as debt resolution.

  • Debt-to-Income Ratio (DTI)

    Measure that compares personal debt payments to personal income. A high ratio means borrower faces a greater burden repaying debts and difficulty accessing other financing options.

  • Debtor

    A person, partnership, corporation, institution, or government that owes money to a creditor.

  • Deduction

    An amount that is subtracted, usually from gross income to reduce income subject to taxes.

  • Deduction

    An amount that is subtracted, usually from gross income to reduce income subject to taxes.

  • Deed

    A written legal document showing transference and ownership of property. It includes the price, description of property and the signatures of involved parties.

  • Default

    The status of a loan that is not repaid according to the terms of the promissory note. Federal student loans enter default status if payment hasn’t been made in more than 270 days.

  • Deferment

    Period of time when loan payments (including principal and interest) are temporarily delayed.

  • Delinquency

    Loan or account status when a borrower misses payments as specified by the repayment period in the loan agreement.

  • Dependent

    Individual, usually a qualifying child, claimed by a taxpayer for credits or exemptions.

  • Dialer

    A sophisticated piece of hardware used by collectors to dial hundreds or even thousands of telephone numbers in a short period of time.

  • Disbursement

    Loan funds paid out to borrower.

  • Discretionary Income

    Amount of individual’s income left for spending, investing or saving after taxes and essential goods like food, housing and clothing are paid. It also includes funds spent on luxury items and other non-essential goods.

  • E

  • Equifax

    One of the two credit bureaus for individuals in Canada.

  • Equity

    Various meanings, but in terms of finances, it’s ownership in an asset after debts related to that asset are paid off.

  • Escrow

    Financial instruments such as a property deed kept by a third party until a specific condition defined by the documents is fulfilled.

  • Exempt Assets

    An exempt asset is property owned by a person, regarded as having value and unavailable to meet debt requirements or commitments.

  • F

  • Fair Market Value (FMV)

    Price an asset would garner if sold in the open market.

  • FICO Score

    A type of credit score created by the Fair Isaac Corporation that ranges between 300 and 850. The number assigned shows a consumer’s likelihood to pay back a debt. Lenders use these scores to determine risk of lending you money.

  • First-Assign

    This is when a person's delinquent account(s) from a creditor has been given to the first collection agency for collection.

  • Fixed-Rate Interest

    Percentage will not change for the life of the loan.

  • For-Profit Credit Counselling Agency

    These companies are licensed by the provincial government to administer debt pooling, where creditors can be consolidated into a repayment plan. They are licensed under the same legislation as collection agencies. These agencies are run for profit to offer a debt management plan that arranges the repayment of all of a debtor's unsecured debts over a period of up to five years. The plan consists of the full repayment of the principle, some fees, and often some interest equaling approximately 120-130 cents on the dollar. This is often the most expensive manner to repay debt, other than keeping your current contract is place.

  • Forbearance

    A temporary postponement granted by the lender when borrower cannot make payments because of financial hardship. Interest accrues and is added to the overall amount owed.

  • Foreclosure

    Lender legally takes possession of a mortgaged property when borrower is unable to make payments or meet obligations.

  • Fraud

    Attempting to use deception for financial gain.

  • G

  • Garnishment

    This is a Court Order where a creditor seeks to seize a percentage of a person's wages from their employer, or in the case of someone who is Self Employed, from their customers.

  • Grace Period

    Period of time between graduation or leaving full-time college enrollment and making the first payment on a student loan.

  • H

  • Home Equity

    The difference between the market value of a home and the outstanding mortgage balance.

  • Home Equity Line of Credit (HELOC)

    A type of secondary financing that consists of a revolving line of credit.

  • Home Equity Loan

    Secondary financing secured by equity in the borrower’s home.

  • I

  • Insolvent

    This is when a debtor is unable to meet his financial obligations as they become due and the dollar value of their debts is more than the dollar value of their assets.

  • Interest Rate

    The cost of borrowing money, usually expressed as a percentage.

  • J

  • Judgement

    A Court Order that states a debtor owes a specific sum of money to a specific creditor.

  • L

  • Lease

    A legal contract signifying rental of goods or property.

  • Lender

    Entity that makes funds available for borrowing.

  • Liabilities

    This is something a person is responsible for, such as a debt or financial obligations.

  • Lien

    A lender or creditor’s right to secure a debt against the property of a borrower.  If obligations are not met, property may be sold.

  • Liquidation

    Converting assets into cash, typically to settle debts with creditors.

  • Loan Forgiveness

    Writing off all or part of a loan balance when borrower meets certain criteria like being permanently disabled. Creditors may only grant this in extreme cases.

  • Loan Term

    Agreed time period for loan repayment.

  • M

  • Master Promissory Note

    Signed legal document that holds terms and conditions of a loan.

  • Moritorium

    A temporary postponement granted by the lender when borrower cannot make payments because of financial hardship. Interest accrues and is added to the overall amount owed.

  • Mortgage

    A type of loan to purchase commercial or residential property.

  • N

  • Non-Profit Credit Counselling Agency

    These companies are funded by credit grantors with the intention of collecting the principle amount of debt that is owed to them. They are an agency that has been set up as a non-profit entity to offer a debt management plan that arranges the repayment of all of a debtor's unsecured debts over a period of up to five years. The repayment consists of full repayment of principle and often some fees equalling approximately 100-115 cents on the dollar. This is an expensive manner to reduce or eliminate debt.

  • Open-End Credit

    Pre-approved loans made on a continuous basis, rather than at one time. It is also known as revolving credit.

  • P

  • Paid In Full

    A status on a credit report that shows debts as paid, rather than reduced or settled.

  • Pension

    A fixed sum paid at regular intervals, typically following retirement.

  • Personal Loan

    A type of unsecured loan, meaning not tied to any property, for personal use and typically based on creditworthiness and other factors.

  • Power of Attorney

    Legal document that allows one person to make decisions, including financial ones, on behalf of another individual.

  • Prime Rate

    A low interest rate offered to the most creditworthy borrowers.

  • Principal

    The amount borrowed, not including capitalized fees and interest.

  • Private Sector

    A for-profit businesses owned by private individuals or groups, rather than the government.

  • R

  • Refinancing

    Replacing an old loan with a new loan at a different interest rate by the same individual.

  • Repossession

    Act of a creditor seizing property to make up for a borrower’s failure to pay on a loan.

  • Retirement

    Stage of life after ceasing to work full-time.

  • S

  • Second Assign

    This is when a person's outstanding account(s) from a creditor is recalled from the first collection agency and is assigned to a second collection agency.

  • Secured Debt

    Loan backed by collateral such as a car or property.

  • Short Sale

    Selling property or security when the recovered money is less than the amount owed.

  • Simple Interest

    Interest rate charged on the principal of a loan.

  • Subsidized Loan

    A type of need-based loan for which the government pays the interest while the borrower is in school and during the grace deferment periods.

  • T

  • T-4 Form

    Employers issue this CRA form that lists an employee’s wages and tax withheld.

  • Tax Lien

    If taxes are unpaid for a period of time, a lender may claim the borrower’s property equal to the delinquent taxes.

  • Term

    Period of time between the initial procurement of the loan and the time the loan is to be paid back in full.

  • Third Assign

    This is when a person's outstanding account(s) from a creditor are placed with a collection agency for the third time. These delinquent accounts can often be referred to as third assigns even when they have been assigned three or more times.

  • Transaction

    An exchange of goods and services.

  • TransUnion

    One of the two major credit bureaus, or Credit Reporting Agencies, for individuals in Canada. See our definition of Credit Bureaus and Credit Reporting Agency.

  • U

  • Unsecured Debt

    This is a debt that has no security or collateral in the event that a debtor defaults on his payments.

  • V

  • Variable Rate

    Interest rates that are periodically reset.

  • W

  • Writ of Execution

    This is a court order authorizing a Court Officer or Sheriff to seize property belonging to a debtor.