13 Oct Five Terms you may not know, but could help you understand your finances
Having a financial education is a very important part of modern life. You need it to make sure you aren’t being ripped off and to make sure you are using your own income to its full potential. It is a pretty universal feeling to worry about money and to feel like your budget just doesn’t stretch far enough, and becoming financially literate can be a great start.
If, like most people, you don’t know where to start, here are ten helpful terms than can start you on your way to becoming a financial genius!
Being in Arrears is a form of debt which occurs when you miss a payment. This could be missing a payment on your rent (rent arrears), bills, council tax, your unsecured debt payments or any other regular payments that you may have. They can accumulate very quickly if they are continually missed, which can cause some serious money worries as you will be expected to pay them back on top of your ongoing monthly payments.
Council Tax arrears, and tax arrears in general, in particular, can be very difficult to handle. The government can be one of the harshest creditors to have, and it is likely that bailiffs will get involved if you don’t contact them in order to schedule repayments.
But don’t let this stress you out! If you have arrears of any kind, contact whoever you owe the money to and explain what has happened. Often, a repayment plan of some sort can be discussed. The thing that creditors and companies like the least is being left in the dark.
This is, quite simply, your belongings. In particular, your belongings which have a significant monetary value. This could be your house, your car, your savings, stocks and shares.
County Court Judgement (CCJ)
If a debtor fails to keep to an agreement the court can order them to pay an outstanding debt. This is a County Court Judgement.
As part of a CCJ, an Attachment of Earnings could be placed on your wages. This means that money to pay your debt is taken directly from your wages. This can happen as part of a County Court Judgement (CCJ) (see below). The court decides the amount is taken from your wages. In Scotland, this is called ‘Earnings Arrestment’.
Similarly, you can have an ‘Attachment of Benefits’ in which the council can have deductions taken from your benefits as part of a CCJ. The amount taken is usually 5% of your personal allowance.
Once you have a CCJ, you could apply to have an Administration Order, which is a debt solution granted by the county court. It allows for debt payments to be consolidated into one payment made to the court who distributes it among creditors.
If you are struggling while under a CCJ, you can apply for a Variation Order. This allows CCJ payments to be varied, due to unforeseen circumstances.
Once your CCJ is completed, you can ask to have a Certificate of Satisfaction for £10. However, if you fail to pay, Bailiffs are given a Warrant of Execution to acquire goods from your property and sell them off to pay your debt.
Equity sounds complicated, but it is actually a simple concept. It is the difference between the value of an asset, and its current market value, minus the cost of sale. In other words, it is the profit you would make if you were to sell an asset. Equity is most often discussed in relation to property and mortgages.
For example, if your total remaining Mortgage (including interest) is £223,010, but the property is now worth £400,000. After all the costs associated with selling your home are taken away (usually around £5000), you are left with a profit of £171,990 (see below for working out). That is your equity.
400,000 – 223,010 – 5,000 = 171,990
Negative Equity is when this number records a loss. For example, if your house is worth less than your mortgage.
Joint and Several Liability
It is possible for two people to take out a loan together, this is sometimes referred to as ‘joint debt’. When this happens, ‘joint and several liability’ ensures that both people are responsible for paying back the whole amount. They are not responsible for only half of the debt, each. If one person cannot pay, then the other person must pay back the entire amount.
Unfortunately, this can lead to a lot of disagreements and difficulties when partnerships and relationships break down. It is not uncommon for people to get into debt when their partner disappears, leaving them with a large debt.
Many people believe that credit cards can have ‘joint debt’, because numerous cards can be issued for one account. However, it is important to know that this is not the case. All credit cards are linked back to only one person – the account holder. So be careful! If you give someone access to this account by issuing them a card, the debt is legally yours – even if they were the ones doing the spending!