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Types of Debt

Any time you owe money you create a debt. There are many kinds of debts. It is important to understand the terms of any credit agreement and how the debt will be dealt with.

Everyday Bills

Ordinary bills, such as monthly utility bills or telephone bills, are forms of debts. These are generally unsecured debts. Utility companies may ask for a deposit or for a co-signer when you apply for the service.

Bank Loans

You create a debt when you get a loan from a bank, credit union, finance company or other financial institution. Two legal documents often used with a loan are a promissory note and a security agreement. A promissory note states the details of repayment and includes the debtor's written promise to pay. A security agreement states which of the debtor's property is the security or collateral, and what the creditor can do if the debtor does not pay. Banks, credit unions and finance companies often ask for a co-signer or guarantor in addition to taking security for a loan.

Payday Loans

Some companies offer payday loans. These are usually small loans that you agree to pay back once you receive your next paycheck. Payday loans are a very expensive way to borrow money and in Saskatchewan there are protections for people entering into one. For the act to apply the loan must be for $1500 or less, be due in 62 days or less and you must have given the lender a post-dated cheque, pre-authorized payment or something similar in nature. Payday lenders must be licensed and must provide you with a written explanation of all the costs associated with your loan as well as information about credit counselling and your cancellation rights. Payday lenders cannot charge in total more than $17 per $100 borrowed.

You have the right to cancel the loan without any reason and at no-cost at any time before the end of the next business day. To do this you need to provide written notice to the lender and return any money advanced to you. You can cancel at any time if the lender did not provide you with the required written information.

If you cannot pay your loan on time the maximum per year that payday lenders can charge for interest is 30% of the amount of the loan. If a cheque or pre-authorized debit you provided comes back NSF they can charge you a one-time fee of $25. If a pre-authorized debit you provided is NSF the payday lender can try one more time within 30 days to withdraw the money form your account.

Contracts for Goods or Services

It is common to contract directly with a supplier of goods or services when making some types of purchases. Sometimes places such as department stores or car lots will finance a purchase creating a debt the purchaser owes the company. These kinds of debts are often secured with the goods, such as furniture or a car that are purchased. Other times people will enter into an ongoing contract for services such as a gym membership or a travel club. Under these contracts the purchaser agrees to make payments over time that can create a debt if they are not paid.

Although generally there is no right to cancel a contract simply because you change your mind there are specific cancellation rights for internet, remote, future performance, personal development services, travel club, direct sales and pre-arranged funeral contracts.

Credit Cards

Using a credit card is another way of creating a debt. A credit card represents a contract between you and the credit card company. Most banks, department stores and gas stations have their own credit cards. Generally, credit card debts are unsecured debts. Credit card companies charge interest on any unpaid amount and usually require a minimum monthly payment.

Credit card companies cannot send you credit cards in the mail that you did not apply for. Under Saskatchewan law a credit card application must show the interest rate of the card, whether there is a "grace" period that is interest-free and the amount of any other finance charges or fees.

The credit card agreement must also tell the card holder the extent to which they are responsible for unauthorized transactions. You will be responsible for a maximum of $50 or the amount set by your agreement, whichever is less. You will not be responsible for any amount if your card is lost or stolen and the purchases were made after you notified the company that the card was lost or stolen. If someone uses your number, without your agreement, you are also not responsible for any charges if you notify the company within 30 days of receiving your statement that someone else used your number. You can notify the credit card company of lost or stolen credit cards or unauthorized use of your card number verbally or in writing.

Rent-To-Own Contracts

Some stores rent televisions, video and audio equipment or furniture, under a contract that allows you to become the owner after a certain number of rental payments. Often, there is a payment at the end of the lease to buy the equipment. If you stop making payments the contract ends. The rental company may then take back or repossess the equipment or furniture. Regardless of how many payments you may have made, you only become the owner when the contract is complete, that is, when you have made each and every payment as required.

Maintenance Payments

Maintenance payments are debts that one spouse or parent owes to the other spouse or parent for spousal or child support after separation.

Maintenance payments result from a court order or an agreement between the spouses or parents.

Property Taxes

Municipal taxes are based on property ownership and are secured against the property. Property taxes are related to the fair market value of a particular piece of property - owners of higher valued property will pay higher taxes than owners of lower valued property. The term used for a municipal property tax rate is "mill rate." The mill rate is the dollars of tax placed on one thousand dollars of property value.

Income Tax

Income tax is a tax that anyone who earns income must pay to the Canada Revenue Agency (CRA), unless exempt. You calculate the amount owing by completing a tax return. If an employer deducts less tax than the amount owing, the employee owes the difference to CRA. You may also owe taxes if you are self-employed, or receive other income from which taxes are not deducted and you have not paid tax installments. CRA reviews tax returns, and may not allow some deductions. In this case you may owe more taxes. The amount of tax owing becomes a debt you owe to CRA.

See Taxation for more information on income and property taxes.

Mortgages

A mortgage is created when you borrow money and give property as security. Most mortgages are used to purchase land or buildings. Mortgages can be arranged with financial institutions such as mortgage companies, trust companies, banks and credit unions. Individuals can also give a loan and take a mortgage as security. The creditor registers the mortgage against the property's title with the Information Services Corporation (ISC), the province's land registry system. Mortgages are a form of secured loans and the property acts as the collateral or security. Registering the mortgage informs others that the creditor has claim to money from the sale of the property or claim to the property if the loan is not paid.

Student Loans

The federal and provincial governments provide assistance for post-secondary students under the Student Loans program. These loans are interest-free while a student is in school. Loan repayment must begin no later than six months after full-time studies end. Although no payments are required to be made during the first six months after full-time studies end, interest will accumulate during this period.

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PLEA gratefully acknowledges our primary core funder the Law Foundation of Saskatchewan for their continuing and generous support of our organization.