Topic 5: Good debt, bad debt

Administration order

A repayment plan arranged by county courts in England, Wales and Northern Ireland for people with less than £5,000 in unsecured debt and at least one county court judgment (CCJ) against them.

Arrears

An unpaid overdue debt.

Bankruptcy

A situation in which a person cannot pay their debts and is the subject of a court order that shares out their assets between their creditors.

Consolidation loan

A loan used to pay off a number of different debts, meaning that there is then only one payment to make each month, to the loan company.

Coronavirus

Coronavirus disease, known as Covid-19, is a respiratory illness that causes mild to moderate symptoms in a majority of cases but proves debilitating or fatal for a significant minority.

County court judgment (CCJ)

In England and Wales, a judgment issued by a county court to a person who does not respond to court action from a person or organisation to which they owe money.

Credit card

A card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM.

Credit crunch

A reduction in the availability of loans or a tightening of the conditions needed to obtain one.

Creditor

A person or an organisation to which a debtor owes money.

Credit reference agency

An independent organisation that maintains records of people's credit history.

Culture

A society's set of norms about behaviour and attitudes across social groups.

Debtor

A person who owes money.

Debt management plan (DMP)

A detailed plan drawn up by a debt management company (DMC) and sent to an individual's creditors.

Debt relief order (DRO)

An order a person in specific circumstances can apply for if they cannot afford to pay off their debts.

Default

To fail to repay borrowing when the repayment is due.

Deficit

Where expenditure exceeds income.

Discharged debt

When the debt has been repaid in full or a period of time has elapsed which means the debt will no longer have to be repaid.

Equity

This has two meanings: a) when talking about investments, an equity is another name for the shares of a company quoted on the Stock Exchange; b) when talking about property, it refers to the difference between the value of a property and the amount of money still outstanding on the mortgage.

Financial footprint

The record or 'footprint' that every financial transaction, and thus every person, leaves behind them.

Hardcore debt

Debt that a person is not in a position to repay because their regular outgoings take up all their available income.

Hire purchase

A type of secured consumer credit, to finance items such as cars and furniture, which involves the borrower repaying over a number of years.

Individual voluntary arrangement (IVA)

A formal alternative to bankruptcy comprising a contractual arrangement with those owed money.

Informal payment plan

An approach to debt repayment that involves the debtor contacting their creditors and managing the debt repayment process by themselves.

Licensed insolvency practitioner

A company or person that sets up and supervises IVAs.

Loan forbearance

When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments.

Official receiver

An officer of the bankruptcy court who takes over the finances of a bankrupt.

Overdraft (authorised and unauthorised)

A facility that allows an account holder to withdraw more money than they actually have in their account.

Priority bills

Bills that an individual has a legal obligation to pay and where the consequences of not paying may be a fine or prison term.

Recession

A period of at least six months in which the amount of goods and services the country is producing is shrinking.

Repossession

A legal process whereby a financial institution takes ownership of an asset, often a house, because loan repayments relating to that asset have not been met.

Secured loan

A loan secured against an asset, such as a house.

Sharia law

Rules that devout Muslims follow which, in relation to personal finance, prohibit the paying and receiving of interest.

Small print

The legal terms and conditions attached to a product, often literally presented in very small type on a document.

Sustainable personal finance

Achieving and maintaining a balance between personal income and expenditure to satisfy needs, wants and aspirations within budget.

Unsecured loan

A loan that is not secured against an asset, eg personal loans, credit cards and overdrafts.