Glossary of Credit and Personal Finance Terms: General Meanings and Definitions

With so many financial terms out there, it’s easy to get confused about what they all mean. Here’s a glossary of common debt, credit, and personal finance terms that you can take a quick look at whenever you see an unfamiliar word. Understanding these meanings will help you talk with a credit counsellor and know the options available to you. 

Please note that our glossary terms and explanations have been simplified for ease of understanding and are intended to provide general information only. 

A

Amortization – The repayment time period of a loan or debt / the number of years over which you’ll repay the loan or debt.

APR (Annual Percentage Rate) – A standard calculation by lenders to show what the interest rate and fees are on a credit product (e.g. loan, credit card, etc.). This helps borrowers compare different loan products.

Arrears – The past due amount owing.

Assets – Things you own, even if you still owe money against them.

B

Bankruptcy – A legal process performed under the Bankruptcy and Insolvency Act. This process relieves consumers of most debts and legal proceedings by creditors will stop. Learn more about bankruptcy. You can also see The Act, or laws, in Canada which govern all bankruptcies or see how bankruptcy compares to other debt relief options.

Bankruptcy and Insolvency Act – The Act, or laws, in Canada which govern all bankruptcies.

Bankruptcy Counselling – As part of completing the bankruptcy process and obtaining the discharge papers, someone must attend two financial counselling sessions to fulfill the bankruptcy requirements.

Bankruptcy Trustee – An individual licensed by the Superintendent of Bankruptcy to administer bankruptcies and consumer proposals. A bankruptcy trustee must follow the Bankruptcy and Insolvency Act. In December of 2015, bankruptcy trustees officially changed their name to “Licensed Insolvency Trustee.”

Beacon / FICO Score – The credit score that creditors look at when determining your credit worthiness. It looks at your financial behaviour and gives you a score between 300 – 900 points. This helps lenders figure out how likely it is that you’ll pay back borrowed money.

Borrower – A person who takes out a loan or goes into debt.

Budget – A spending plan that includes your sources of income, all of your monthly and annual expenses, and future needs / possibilities. Budgeting is the process of forecasting your future income and expenses and making a spending plan to make sure your expenses don’t go over your income.

C

Co-borrower – The secondary person on a loan / debt – this person is still 100% responsible for repaying the debt at any time.

Collateral – An asset pledged as security on a debt so that if the debt isn’t repaid as agreed, a lender can collect the collateral and sell it to recover any money owing on the debt.

Collection Agency – A company that recovers funds owed on a debt that’s past due.

Compound Interest – Interest earned on previously built up interest as well as the principal.

Co-signer – Someone who signs on a loan as a guarantor for the primary borrower to the application. They are 100% responsible for the debt if the primary borrower fails to repay it.

Consolidation Loan – A loan that’s used to pay out other debts.

Consumer Proposal – Under the Bankruptcy and Insolvency Act, you may make a legal proposal to your creditors to reduce the amount of your debts, extend the time you have to pay off the debt, or provide some combination of both. By law a consumer proposal can only be setup and administered by a bankruptcy trustee also known as a Licensed Insolvency Trustee. Learn more about what a consumer proposal is. See how a consumer proposal compares to other debt relief options.

Cost of Borrowing – The cost to you to borrow money, including interest, fees, and any other costs connected to the loan.

Conditional Discharge – Part of the bankruptcy process when the Court decides that people must still complete additional conditions to finish their bankruptcy process. Once the Court is satisfied that the conditions have been met, the bankruptcy is successfully discharged.

Credit – Getting goods or services without paying for them now, but with a promise to pay for them later.

Credit Bureau – A company’s licensed to collect and compile information about your financial behaviour. The information comes from a variety of credit granting sources as well as public records information. Credit Bureaus sell the information, in the form of a credit report, to those legally allowed to get it.

Credit Counselling – Professional counselling provided by organizations that help consumers find ways to repay their debt through careful budgeting and money management. Credit counselling is conducted by individuals called counsellors. The valuable services they provide are referred to by many different terms: debt counselling, credit card counselling, consumer debt advice, debt relief, debt management, credit card consolidation services, and even Christian credit counselling. Learn more about what credit counselling is.

Credit Counsellor – A trained financial professional who helps consumers find ways to repay their debt through careful budgeting and money management. They tend to be experts on strategies, methods, and repayment programs that get people’s finances back on track and get them out of debt. Between financial difficulty and bankruptcy are a lot of options. Credit counsellors specialize in helping people explore these options. Leading credit counselling service providers train their credit counsellors to high standards and ensure that they are professionally accredited. Leading non-profit credit counselling organizations like the Credit Counselling Society are accredited by Credit Counselling Canada which ensures its members adhear to the highest ethical standards.

Credit Rating – An evaluation of the likelihood of a borrower to default on a loan. Credit reporting companies provide information about your financial behaviour to lenders to help them decide whether or not to lend you money. The information may include your payment history, a list of current and past credit accounts and their balances, employment and personal information, and a history of past credit problems.

Credit Report – A credit report is created when you start to apply for credit. It’s a summary that gives information to potential lenders about the risk in extending credit and the probability of repayment. It has your personal information and lists who you’ve applied for credit with, how often you do it, how regularly you make payments, and any public records (court judgments) about you. Each lender gives you a rating depending on your “performance” with them. Equifax and TransUnion are the two largest credit reporting agencies in Canada.

D

Debt Consultant – In Canada this term is often used to refer to an individual who attempts to advise people experiencing debt problems on how to get out of debt. However, unlike many other financial professionals, this person is typically unlicensed and uncertified in their field with little to no professional training. These consultants or advisors typically function as sales people promoting “solutions” that pay them a commission. Many times the recommended “solution” is a consumer proposal which debt consultants are not licensed to offer or have any involvement with. The additional help and support debt consultants claim to offer for the substantial fees they charge can usually be obtained for free or for a lower cost from an accredited non-profit credit counsellor or from a government Licensed Insolvency Trustee.

Debt Management Program – A repayment program that helps you get out of debt within a reasonable amount of time. After working out a budget, your creditors would be asked to reduce your monthly payment to match the repayment plan. Creditors will often eliminate or reduce further interest charges. Learn about our debt management program.

Debt Settlement – An agreement with a creditor to repay a debt to them for less than the full amount owed. While a creditor normally expects to be repaid the full amount of money someone has borrowed from them, extreme, unexpected circumstances can significantly reduce someone’s ability to repay a debt. Examples include a workplace accident, prolonged illness, or something else that unexpectedly and dramatically reduces someone’s ability to earn an income and repay their debts. If a creditor realizes that someone can’t fully repay a debt, they may be open to a settlement negotiation and allow someone to repay less than the full amount owed. The final, reduced amount of debt settled on (i.e. the amount to be repaid) usually must be paid off with one lump sum of money. The money to settle (i.e. pay off) the reduced debt often comes from a family member, friend, or inheritance. Creditors are of course far less likely to agree to a settlement if they know the borrower has assets they could easily sell to repay the debt.

Debt settlements are also possible if someone has fallen really far behind on their debt payments, creditors have little hope of seeing the full amount of debt repaid, and the debtor now has a family member offer to repay the debt or they receive some inheritance money.

Some for-profit companies advertise they can get debt settlements for everyone and no significant financial hardship needed. These companies usually end up with a lot of disappointed, angry customers who are left worse off with more debt and less money. Learn more about debt settlement or see how debt settlement compares to other debt relief options.

Debtor – The person who owes money to someone.

Demand for Payment – A letter from a creditor or collection agency saying how much time there is left to pay a debt. The letter may also say what further action will be taken if payment isn’t made (e.g. legal action).

Discharge – Also known as “absolute discharge” and part of the bankruptcy process. After someone who declares bankruptcy meets all the requirements to legally resolve their debt problems, they’re released from their obligations. This is what “discharged from bankruptcy” means.

E

Equity – The difference between the price for which a property could be sold and the total debts registered against it.

F

Foreclosure – The forced sale of property pledged as security for a debt that’s in default.

G

Garnishment – A legal order to withhold money from your pay cheque and send it to another party, such as a creditor.

Gross Income – How much your pay cheque is before taxes are taken out.

Guarantor – A person who pledges collateral for the contract of another or who legally promises to pay a certain debt if the original borrower doesn’t pay it (i.e. defaults). 

I

Identification Theft – When someone collects and steals people’s personal information so that they can pretend to be someone else in a fraudulent financial transaction. This type of theft often takes the form of a thief using people’s personal information to apply for credit cards in the victim’s name. The thief then profits from this crime by racking up large bills on these new credit cards.

Interest Rate –  The cost of borrowing money, shown as a percentage, usually over a period of one year.

Insolvency – People are considered “insolvent” if they no longer have the means to repay their debt. Insolvency is a legal process and there are 2 ways to deal with debt through insolvency: a consumer proposal or bankruptcy. Learn more about insolvency.

J

Joint Debt – A debt that’s agreed to by two individuals. Each debtor is fully responsible for 100% of any amount owing.

Judgement – The formal decision made by a court following legal proceedings.

L

Layaway – A way to pay for something through several installments; the purchase is set aside for the buyer until it’s paid for in full, and only then does the buyer get it.

Lease – A contract granting the use of property for a specified length of time in exchange for a specified rental price.

Liabilities – The debts and other financial obligations of a person or company; the opposite of assets.

Licensed Insolvency Trustee – An individual licensed by the Superintendent of Bankruptcy to administer bankruptcies and consumer proposals. They’re required to follow the Bankruptcy and Insolvency Act and the directives of the Superintendent of Bankruptcy. Up until December of 2015, licensed insolvency trustees were called bankruptcy trustees. Learn more about insolvency.

Lien – A claim against an item by another party which uses that item as security for repayment of a loan or other claim. A lien affects the ability to transfer ownership.

Line of Credit – Also known as a demand loan or operating line. An agreement by a lender to extend credit up to a certain limit whenever the borrower needs to use it.

Liquid Assets – Assets which can be turned into cash easily (e.g. term deposits).

Loan – A sum of money lent at a specified interest rate.

Locked-In RRSP – A Registered Retirement Savings Plan that’s kept for the owner’s retirement and cannot have money taken out before the owner reaches retirement age. A locked-in RRSP is usually pension funds from someone’s previous employer that are meant to give income for that person in retirement. However, if someone encounters specific types of financial hardship, it’s possible to unlock and withdraw RRSP funds in some cases.

N

Net Income – How much your pay cheque is after taxes have been taken out.

Notice of Claim – The notice that you get if you’re being sued in Small Claims Court. Here’s what to do if you receive a Notice of Claim from a creditor.

O

Orderly Payment of Debts – A legal proceeding that will consolidate your debts into one payment which must be paid to the court on a periodic basis. Upon receiving payments, the court will disburse payments (i.e. give them out) to creditors on a debtor’s behalf. See how Orderly Payment of Debts compares to other debt relief options.

Overdraft – The extension of credit by a lending institution which allows withdrawals to exceed deposits in a bank account.

P

Payday Loan – Usually a small, short-term loan that’s secured by the borrower’s next paycheque. The interest charged on these loans is often substantial.

Payment Hearing – A hearing held before a judge or justice of the peace to assess a debtor’s ability to pay and / or to determine how the debtor will pay the judgement against them.

Principal – The amount borrowed.

R

Recidivism Rate – The percentage of people who repeat a debt repayment program or declare bankruptcy for a second or third time.

Refused Discharge – Part of the bankruptcy process. When the Court reviews someone’s application to be discharged (released) from their obligations, the Court has the option to refuse someone’s discharge.

Repossession / Seizure – To take back a collateral for failure to pay as agreed. A repossession can be involuntary, or it can be voluntary, meaning that the debtor chooses to return the collateral to the lender.

Right of Offset – A financial institution’s legal right to seize deposited funds to cover a debt that’s in default with them.

RRSP (Registered Retirement Savings Plan) – A savings product that allows individuals to save for their retirement while gaining some income tax benefits.

S

Security – Property which is pledged as collateral for a loan, which can be taken back by the lender if the borrower defaults on the loan.

Settlement (Debt Settlement) – When a creditor agrees to accept a reduced payment on a debt, giving up their right to the remainder that’s outstanding. Learn more about debt settlement. 

Suspended Discharge – Part of the bankruptcy process. This is an (absolute) discharge that doesn’t come into effect until a future date.

Statute of Limitation – The maximum period of time after certain events that legal proceedings, based on those events, may start (e.g. the length of time that a creditor has the right to start legal action for a debt that has become due).

T

Term – The number of months for the current period of the loan.

Trustee – In our field, this is a person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies. Historically they have been known as Bankruptcy Trustees, however, in 2015 they officially changed their name to “Licensed Insolvency Trustee” or LIT. To carry out their job of filing and administering bankruptcies and consumer proposals, a trustee must follow Canada’s Bankruptcy and Insolvency Act

U

Undischarged Bankrupt – Bankruptcy that has been started but not yet completed (i.e. discharged).

Unsecured Loan – Money that’s borrowed without any collateral / security against it.

W

Writ of Summons – The notice you receive if you’re being sued in Supreme Court.