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The world of finances can be a minefield when it comes to understanding some of the terminology. There are so many acronyms and abbreviations that they end up being just plain confusing. If you don’t know your APR’s from your IVA’s or you get your CCJ’s and your DAS’s mixed up, then this handy glossary of debt terms will be indispensable.
This comprehensive guide to debt jargon will help you to cut to the chase and explains what the most common terms you will find on financial paperwork actually means. Scotland and Northern Ireland have different terminology than England and Wales for some processes, and these are represented here as well.
It’s difficult enough to concentrate on sorting out your finances without the financial terminology adding to the headache. To make things easy for you, here is a comprehensive list of UK debt phrases. The most common phrases are highlighted in blue for your convenience.
A
Administration Order - This applies if you have a County Court Order and debts totalling less than £5,000. The Administration Order means that the debts are restructured into one payment to the local county court, who then distribute that payment between your creditors.
AER - This stands for Annual Equivalent Rate and shows how much interest you would earn on a savings account.
APR - This stands for Annual Percentage Rate. You will come across this term frequently as it is linked to interest rates for credit cards, loans and mortgages. APR varies between lenders and the higher the APR figure, the more interest you will pay.
Arrears - Arrears, very simply, are a missed payment. Multiple missed payments can have a damaging effect on your credit rating and lead to increased debt.
Arrestment (Scotland) - Whereby the Scottish courts freeze your bank accounts and use any monies within them to pay for your debts.
Asset - An asset is an item that you own that has monetary value such as a car, savings, stocks and shares.
Assignment - An assignment is where your creditor sells your debt to another company. It’s important to know that this is not the same as the creditor hiring a debt recovery agency to act on their behalf.
Attachment of Benefits - This is linked to County Court Judgement payments. If you fail to keep up with them the council has the power to take money out of your benefits. This is done at 5% of the personal allowance for a single claimant aged 25 and over.
Attachment of Earnings - This is similar to Attachment of Benefits. If you fail to keep up with your County Court Judgement payments the creditor can apply to the courts to have the money deducted directly from your wage. The court will decide how much is taken from your earnings to pay your creditors.
B
Bailiffs - A Bailiff is a creditor or court-appointed official who can remove and sell your personal items in order to pay your debts. In Scotland, these are known as Sheriff Officers.
Balloon Payment - A one-off, lump sum payment. This is usually made at the end of an agreement. This is common within car finance.
Bankruptcy - This is a legal procedure where the courts write off your debts (with some exceptions). If you have any assets they will usually be sold when you apply for bankruptcy to pay off your debts. Most bankruptcies are discharged with the first year but it remains on your credit score for a further five years.
Budget - The amount of money you have each month. Your income (what you bring home) and your outgoings (expenditure) is the budget that you have to work with.
Budget Deficit - When you have more money going out than you have coming in.
Budget Surplus - Any money that you have left over after paying all your financial commitments.
C
Capped Rate - This usually applies to mortgages and energy tariffs. The amount of interest that it incurs may rise or fall but will never go above a pre-arranged figure.
Certificate of Satisfaction - A certificate issued by the court as proof that a court order such as a County Court Judgement or an Attachment of Earnings has been paid. This costs £10.
Charge for Payment (Scotland) - The Scottish equivalent of a County Court Judgement where a document is served saying that you have to pay a given amount over a certain length of time.
Charging Orders - If you have a large County Court Judgement against you, the Charging Order will allow you to use your property and land assets to turn an unsecured loan into a secured loan.
Company Voluntary Arrangement - The business equivalent of an Individual Voluntary Arrangement.
Contractual Payments - This is the amount of money that you agree to pay back each month once you sign the credit agreement. Not keeping to these terms can damage your credit rating.
County Court Claim Form - This is issued to inform you that a creditor has started legal proceedings against you. You have 14 days to respond, otherwise a County Court Judgement will be issued against you and you will be made to pay the full amount immediately.
County Court Judgement - Commonly abbreviated to CCJ’s. It is an order issued by the county court as a way of making you pay for debts that you have defaulted on. The court will decide on how much you must pay.
Credit File - A file of your financial history, including the amounts you have borrowed and the credit you have applied for. It also contains your payment history for these various credits.
Credit Score - A representation of how creditors assess whether they want to end you money or not. Each creditor has their own system for deciding - there is no such thing as a universal credit score rating system.
Creditor - A person or company who lends money to businesses and consumers, usually a bank or credit card company.
D
Debt - An amount of money owed to a person or a company.
Debt Arrangement Scheme (Scotland) - Usually shortened to DAS. It is a debt management scheme run by the Scottish Government. Similar help will be offered through the Debt Arrangement Scheme to help deal with money worries.
Debt Collection Agency - Creditors can either employ debt collection agencies to recover debts from people who have defaulted, or they can sell debts to them. They are not bailiffs and only have as much power as any other unsecured creditor, although they can be confrontational in their motives.
Debt Consolidation - The process of taking out a loan to pay off other smaller debts. Consolidating the debts would then allow you to then make one monthly payment for your debts instead of several small ones. Often, this one payment is less than the combined payments of the several smaller debts.
Debt Management Plan - Sometimes referred to as a DMP for debts. An informal agreement between you and your creditors whereby you agree to a fixed payment over a longer length of time. It is not legally binding.
Debt Payment Programme (Scotland) - A Debt Payment Programme, or DPP for short, is a formal repayment programme as part of of the Debt Arrangement Scheme. It gives you the opportunity to make one payment to your debtors over a reasonable amount of time.
Debt Relief Order - A Debt Relief Order, or DRO, is available to anyone who does not own their own home, has less than £20,000 of debt and less than £50 budget surplus for the month. Your debts would be frozen for a year, and if there is no change in circumstances your debts will be written off.
Debt Settlement Offer - DSO’s are a one-off large payment that you agree with your creditor, on the understanding that the remainder of the debt will be written off.
Debtor - Someone who is in debt and must pay creditors back.
Default Notice - A notice that creditors will issue when you have not kept to the terms and conditions of your financial arrangements with them.
Deficit - When your outgoings are more than your income.
Dependent - Someone that relies on you for financial support, such as a child.
Disposable Income - The amount of money you have left to spend on non-essential items after all your bills have been paid.
E
Early Repayment Charge - Some lenders have an early repayment charge built in to the terms and conditions, whereby if you settle the debt early there will be a charge to pay.
Earnings Arrestment (Scotland) - The Scottish equivalent of an Attachment of Earnings order, whereby creditors can apply to have any money you owe them to be taken straight out of your wages.
Enforcement of Judgement Office (Northern Ireland) - The EJO is responsible for collecting unpaid court debts that have not been paid.
Equity - The difference between how much you owe on your mortgage and the actual value of the house. So if your mortgage is for £120,000 but it is valued at £200,000, you have equity of £80,000. Negative equity is where the sum of the value of your property and any secured loans exceeds the value of your house.
Estate - This is everything that you own, such as your home, land, car and personal belongings.
Eviction - A legal process whereby you are forced to leave your home. Bailiffs can legally change locks to your home if you do not leave of your own free will.
Exceptional Attachment (Scotland) - The removal of non-essential items from your home to pay for outstanding debts.
F
Final Discharge - A document that confirms that your bankruptcy has ended and that you are debt free.
Fixed Rate - A rate of interest that does not change over an agreed period of time.
G
Gross - Your gross is the total amount before any deductions are taken from it, such as national insurance contributions and tax.
Guarantor - A person who agrees to make the debt payments if the debtor cannot make them themselves.
H
Hire Purchase - An agreement to purchase an asset through regular payments. Upon the final payment, the asset is owned by the debtor. If regular payments are not made, the asset can be repossessed.
I
IFA - An Independent Financial Advisor. They are not linked to the companies offering credit and their advice is impartial.
Income Payments Order - The Official Receiver of a bankruptcy can apply for an Income Payments Order if they believe that the debtor is in a position to financially contribute to their bankruptcy. This would then be distributed amongst the creditors accordingly.
Individual Voluntary Agreement - Commonly referred to as an IVA. It is a formal arrangement whereby you pay a single payment for five years and the payment gets distributed amongst your creditors. Once this allotted time period has expired, any remaining debt is written off.
Informal Arrangement - When you and your creditors come to an arrangement for reduced payments without the need for a third party being involved.
Insolvency - This is when you do not have sufficient funds, assets or time to make your financial repayments.
Insolvency Practitioner - A person qualified to help you with your insolvency.
Interest Rate - An amount of money that is added to a credit agreement. It is usually shown as a percentage.
J
Joint and Several Liability - More commonly known as ‘Joint Debt’. This is where two people enter a credit agreement and are jointly responsible for paying for it. This means that if one person does not make their contributions, the other person could be asked to pay the full amount.
K
Key Facts - This is a document provided by a lender that details all the costs and features of a particular financial product.
L
Late Fees - These may be added to your account if you make a payment after the agreed date.
Lender - A company or a person who will lend you money, such as a bank or credit card company.
Liability - When you are financially responsible for paying something.
Liability Order - This is linked to non-payment of council tax. If a reminder has been sent out and there is no payment after 28 days, a court summons will be issued. If the court summons is not paid, a liability order can be arranged to take the money directly from wages or benefits.
Liquidation - Also known as ‘winding up’. When a business goes bankrupt, all its assets are sold off to pay its debt. Any remaining monies are then distributed between the shareholders.
M
Money Judgement (Northern Ireland) - This is issued by the courts in Northern Ireland for non-payment of debts.
Monthly Expenses - This is your monthly outgoings, such as bills and credit repayments.
Mortgage - A loan that you take out to buy your house.
N
Non-Priority Debts - If you cannot afford to make these payments, the consequences are not so serious. You cannot be sent to jail, for example, for not paying your credit card bill.
O
Official Receiver - A designated court-appointed official to deal with a business or an individual’s bankruptcy.
Outright Possession Order - A court order granted at a repossession hearing. Once an outright possession order is given you will have 28 days to vacate the property as it now legally owned by your creditors.
P
Payment Holiday - Some creditors have a built-in agreement where you don’t have to make any payments for a specific amount of time.
PPI - Payment Protection Insurance. This can be purchased in addition to a loan, credit card or mortgage and will cover your repayments for a specified amount of time if you are unable to due to illness, unemployment or an accident.
Proof of Debt Form - This is used by a creditor who wishes to be included in IVA or bankruptcy proceedings.
Property Restrictions - A restriction may be put on your property during the course of an IVA. This is to protect the equity.
Pro-Rata - This means ‘In proportion to’. So, let’s assume you have £100 to spend between two creditors. In total you owe one creditor £1,800, and £200 to another creditor. A pro-rata payment would see the first creditor receive £80 and the second creditor would receive £20.
Proxy - this is a person who is sent to represent someone else. In these terms, it is usually a representative for the creditors.
R
Redemption Penalty - The same as an early repayment charge. A lender may charge you a fixed sum for repaying a loan early.
Repossession - Whereby your mortgage provider or secured loan provider takes ownership of your property to pay for your debts. You will then be evicted.
Right to Off-Set - If you have a bank account and a debt with the same company they can take money from the bank account to cover your debts. They do not need your permission to do this.
S
Secured Debt - A loan that is attached to your property. If payments are not met then this property can become forfeit for the outstanding amount.
Sequestration (Scotland) - The Scottish equivalent to bankruptcy. Sequestration in Scotland is available for people who are simply unable to pay off their debts.
Sheriff Officer (Scotland) - The Scottish equivalent of a court official like a bailiff.
Shortfall - If you sell something for less than you owe on it then you have a shortfall. Your lender will still expect you to pay the difference.
Statutory Demand - A court order that demands that you pay a debt either in a lump sum, in arranged payments, or by securing the debt against an asset.
Sub Prime Lending - Lending money to those who do not have a good credit history. This is usually done at a higher rate of interest.
Surplus Income - This is the amount left at the end of the month after you take all your essential bills into account. This is usually the amount that will be made available to your creditors if you continually default on your payments.
Suspended Possession Order - Usually granted at a repossession hearing. As long as you keep to the agreed payments defined by the courts your creditors cannot take away your property.
T
Term - The amount of time that a policy will last for.
Time Order - Where you can petition to the courts to ask for more time to pay a debt. They have the power to change the amount of money you have to pay or extend the length of time in which you must pay it by.
Token Payment - Where you cannot pay your regular payment and agree with your creditors a small payment rather than paying nothing at all. This can be as little as £1 per month but it show that you are actively trying to pay at least something.
Transactions at an Undervalue - The act of selling an asset for less than it is worth with the aim of it being excluded from your bankruptcy proceedings. The Official Receiver can investigate your financial history for up to ten years prior to your bankruptcy.
Trust Deed (Scotland) - The Scottish equivalent of an IVA. The Scottish Trust Deed is an official form of insolvency whereby one payment is made and split between your creditors over a fixed period. This is usually three years.
Trustee - This is the person who takes control of selling assets during bankruptcies and IVA’s. This is usually the Official Receiver or the Insolvency Practitioner.
U
Unsecured Debts - These are loans that are not attached to any assets. They are usually things like credit cards, store cards, personal loans and home shopping catalogues.
V
Variable Rate - A rate of interest that can fluctuate. This is determined by the lender.
Variation Order - When a debtor cannot afford to pay a County Court Judgement due to unforeseen circumstances, an N245 form can be used to vary the payments accordingly.
W
Warrant of Arrest - when the police are sent to arrest a person. They can be held in custody until they are brought before a judge, or can be granted bail and a court appearance is et for a predetermined date.
Warrant of Execution - If a debtor has failed to pay their County Court Judgements and has not filed a Variation Order, the court can instruct bailiffs to enter your property and remove goods to cover the amount owed.
Windfalls - If you suddenly come into money during an IVA or bankruptcy it will be used to repay your debts.
