Over-indebtedness: Know How to Solve It

Over indebtedness affects almost 15% of the Brazilian population. This reality is a result of the lack of financial education, coupled with the ease of credit in the country.

This accumulation of debt ends up causing over indebtedness. Moreover, many banks do not contribute to diminishing this reality with their extremely high interest rates.


What is over-indebtedness?

Over-indebtedness occurs when a debt cannot be repaid with the debtor’s current income. Still, every month, this debt continues to grow because of the very high interest rates charged.


How does over-indebtedness begin?

debt loan

By borrowing a debt, the debtor overestimates his conditions to repay it. Thus, when no payment occurs, compound interest is responsible for gradually increasing the amount of the debt.

When it reaches an absurd value, it becomes impossible to get out of this situation. As such, many people fall into a financial meltdown, loan loans and credit card bills.

Often due to the huge supply of expensive and easy credit in Brazil. This reality associated with exacerbated consumerism and lack of a budget creates a financial snowball.


Over indebtedness types

over debt

Over-indebtedness can come from two different types of behavior:

1. Liabilities

It is one in which the motive of indebtedness is beyond one’s control. That is, when there is a large reduction in income that makes it impossible to meet a debt. Cases such as divorce, death in the family and physical accidents are examples of unexpected events that end up disrupting finances.

2. Active over-indebtedness

It is the result of a large accumulation of debt. For example, a person creates a debt and, to repay it, ends up borrowing from the bank. However, this loan has high interest rates that eventually exceed this person’s monthly income. That is, it is the result of poor financial management.


How to identify over indebtedness?

debt loan

Generally, someone is over indebted if they are in the following situations:

  • It has the dirty name in the restrictive credit register (SPC and SERASA);
  • Make loans to repay other loans;
  • Has a much lower income than the amount owed;
  • Recently suffered a financial eventuality (accident, death in the family etc);
  • Purchase without planning;
  • Does not have a personal and household monthly budget;

If you identify yourself in most of these situations, you are probably in debt distress. This reality is extremely harmful beyond the financial area. Over-indebted people end up suffering from insomnia, anxiety and compulsions. In addition, basic needs such as food and housing can be compromised. To get around this, there are agencies such as the Public Defender’s Office and Procon that are prepared to help. First, they report what caused consumer over-indebtedness and the increase in value, and seek discharge conditions appropriate to the indebted person’s income.

In addition, in cases of unfair interest, the contract may even be canceled or have revised clauses.

However, it must be remembered that behavior change is essential for the ultimate solution. It is no use getting good payment terms and then creating new debts.


How to avoid over indebtedness?

debt problem

The biggest prevention against any kind of debt is financial education. With it, you can be well informed about consumer rights and payment formats.

Also, a budget is crucial for the financial organization, be it personal or household.

In it are noted:

  1. Monthly expenses (rent / bills in general);
  2. Variable monthly expenses (street food / gifts);
  3. Total income received.

With this information, it is easier to find and eliminate destructive habits.

Moreover, in the case of passive debt, when we do not choose the large expense, we must beware.

Creating an emergency reserve prepares you for eventualities. Her value varies according to her income. It usually amounts to six times your living expenses. Unlike income, the cost of living is the basic living expenses.

Therefore, if you are in debt distress or are looking to prevent it, make a financial planning. From it you can understand their conditions and budget limits. Get organized financially through the monthly financial planner and make smarter financial decisions.

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