Exploring the Financial Glossary: Essential Terms Series - Part Two
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By Taz Rajan, Bromwich+Smith Staff | 1397 words | Reading Time: 3 minutes| Date: 2023/09/22
If you don’t come from a financial background- and often even if you do- the financial jargon can be confusing. Is there a difference between a credit score and credit report? LIT, SOP, COLA…. What do they mean and why should I know what they are? Let’s simplify and break down these commonly used terms. You can find more terms on our previous blog.
1. Asset
An Asset you own is worth money if you sell it. A house would be an asset, jewellery, investments, intellectual property, a business, vehicles, etc. An asset puts money into your account or budget.
2. Balance
A balance is the amount of money you owe or still need to pay. It can also mean the net amount of money in a bank account after debits and credits are accounted for. The balance owing is the difference between any amount credited or debited to your account.
3. Bank Account
A bank account is managed by a bank or other financial institution, such as a credit union. In banking, an account refers to an arrangement by which an organization, typically a financial institution such as a bank or credit union, accepts a customer’s financial assets and holds them on behalf of the customer at his or her discretion.
4. Bankruptcy
Governed by the Bankruptcy and Insolvency Act, bankruptcy is a formal process whereby debtors who cannot meet their obligations sign over all of their assets—except those exempt by law—to a Licensed Insolvency Trustee (LIT). The LIT's role includes selling off those assets to satisfy outstanding debts. Once debtors are formally declared bankrupt, lawsuits by creditor are stayed and garnishments against debtors' salaries stop.
5. Consolidation Loan
Is a loan made in order to consolidate several debts into one loan, usually for the purpose of reducing the monthly payments by extending them over a longer time period.
6. Consumer Price Index
The consumer price index (CPI) tracks how much the average Canadian household spends and how that changes over time. At the Bank of Canada, we use it to target inflation.
7. Consumer Proposal
Consumer Proposal is a negotiated settlement of what you owe your creditors. You pay what you can afford, instead of what your creditors are demanding. Think of it as a settlement with those you owe on terms you both agree with. Only a Licensed Insolvency Trustee (LITA) is federally legislated to administer Consumer Proposals.
8. Cost Of Living Adjustment (COLA)
A cost-of-living adjustment (COLA) is an increase in pay or benefits designed to keep up with the rising costs of goods and services due to inflation. COLAs help keep people’s earnings and living costs in proportion. A cost of living pay adjustment is a change in income or benefits corresponding to the current living cost in a particular region.
9. Credit Card Debt
You will have credit card debt when you charge money to a credit card or get a cash advance. The amount of credit card debt you have must be paid in full each month. Otherwise, the debt carries to the next month and will include an interest charge.
10. Credit Score and Credit Report
This is a report of your history with credit. It includes when accounts were opened, limits, balances, late payments and so much. A Credit Score, on the other hand, is the actual mark you get or score; in this case, it is three numbers long. (link to either Richard Moxley’s videos or a credit report/score blog)
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11. Debt Default
Debt default is when you fail to repay a loan you signed or co-signed for in Canada. Example: Bank (lender) lends you (borrower) $5000, which needs to be paid back monthly at a specific interest rate.
12. Debt Limit
A debt limit is the maximum amount of money a person can borrow or spend.
13. Debt Repayment Plan
A debt repayment plan, in simple terms, is a guide that explains how you plan to repay your debt. Learn more about your debt relief options.
14. Discharge from Bankruptcy
The final step in bankruptcy proceedings, a discharge is the release of the bankrupt from the legal obligation to pay back what is owed—with some exceptions—as of the date of the filing of the bankruptcy.
absolute discharge
When an absolute discharge occurs, the bankrupt is released from his or her legal obligation to pay back the debt—with some exceptions—as of the date of the filing of the bankruptcy.
automatic discharge
When an automatic discharge occurs, the bankrupt doesn't have to go to court for the proceedings to be finalized. This can happen only if the following conditions are met:
it is the first or second bankruptcy;
the bankrupt has not refused or neglected to receive counselling;
the bankrupt made the payments from surplus income if and as required; and
the discharge is not opposed by the Licensed Insolvency Trustee, a creditor or the Office of the Superintendent of Bankruptcy.
conditional discharge
The Court may impose certain conditions that must be met before a person's discharge becomes absolute. For example, the Court may require the bankrupt to pay an amount to the Licensed Insolvency Trustee for distribution to creditors.
suspended discharge
The Court orders a delay that results in the discharge not being in effect until a later date.
15. Garnishment
A legal process where a creditor gets a third party (often an employer) to turn over a debtor's property, such as wages or bank accounts.
16. Goals
Goals are achievements you’d like to reach at a point in time during your life. You can set long-term goals over 5 years or short-term goals 1-5 years. For example, a long-term goal would be to pay off your mortgage in ten years. A short-term goal would be to pay off your credit card in one year.
17. Historical Expenses
Using a Historical Expense Tracker to build a budget is the most crucial step toward accuracy by documenting where your money was spent. Historical expenses use documentation of past expenses to build a better future budget. Ideally, you’ll want to save your irregular expenses each month until the bill comes due. Some examples include Vehicle registration, annual subscriptions etc.
18. Insolvency
The inability of a debtor to pay off debt as it becomes due.
19. Interest Rates
An interest rate is the money you owe or must repay when you borrow money. For example, if you borrow money for a mortgage from a bank, you must pay the amount you borrowed plus an interest rate set by the bank. Other examples are credit cards, student loans, lines of credit, etc.
20. Liabilities
Liabilities are your outstanding debts, personal or business. For example, you owe the bank for your mortgage and a parent for a personal loan. Liabilities take money out of your account or budget.
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21. Licensed Insolvency Trustee
(LITs) are federally regulated professionals who provide advice and services to individuals and businesses with debt problems. LITs help people make informed choices to deal with their financial difficulties. An LIT will deal directly with creditors under the oversight and ethical practices of the Office of the Superintendent of Bankruptcy (OSB).
22. Minimum Payment
The minimum payment is the least amount of money you repay on a debt that is owed. This will not pay off the total balance owing on your credit product.
23. Pay Yourself First
Paying yourself first means to set money aside for savings/investing before paying your bills. It’s including yourself in the monthly budget so that you are saving or investing part of your income.
24. Proof of Claim
A written statement that, along with documents that verify it, proves a claim by a creditor. If accepted by the Licensed Insolvency Trustee, the proof of claim is used to determine how much is paid to the creditor.
25. Receipts
A receipt is given to someone that details what was purchased by the consumer. The importance of the receipt when budgeting is massive, so we should always ask for them. Using receipts to budget your expenses is necessary to create an accurate monthly budget.
26. Secured Creditor
A creditor is a person who is owed money, goods or services. A secured creditor is one who takes collateral for the extension of credit such as when a car or house is purchased.
27. Stay of Proceedings
Once a person files for bankruptcy or files a consumer proposal, a "stay of proceedings" immediately prevents creditors from either starting or continuing a legal action against the debtor. It’s like being shielded from all creditor action.
28. Surplus Income
Amount of a person’s total income that exceeds what is necessary to maintain a reasonable standard of living according to the standards set by the Office of the Superintendent of Bankruptcy. The bankrupt must make payments out of this surplus income to the bankruptcy estate for distribution among the creditors.
29. Unsecured Creditor
A creditor is a person who is owed money, goods or services. An unsecured creditor is one who gives credit but who does not have any security for the debt owed them.
Discover more term definitions in the Financial Glossary: Essential Terms Part 1.
If you find yourself struggling to balance your budget, reach out today and learn about your debt relief options. Thousands of Canadians every year look to Licensed Insolvency Trustees like those at Bromwich+Smith to learn about available debt relief programs. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page.
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By Taz Rajan Community Engagement Partner at Bromwich+Smith
Taz has been in the finance industry for nearly 2 decades and has always been passionate about education and empowerment. Having declared bankruptcy herself, she intimately understands the shame, stigma surrounding matters of debt as well as the joy and relief that comes from restructuring. Taz actively works to normalize the conversation of debt through blogs, media interviews, webinars, lunch & learns and through building relationship.