Why Brazilians get deeper into debt

The Brazilian has a somewhat different and even a little scary fame: that of debt. Even the band Killer Mamonas illustrated this by saying, “My happiness is a credit in Casas Bahia.”

Why do Brazilians get more and more indebted? We explain it to you. According to the Credit Protection Service (SPC) and the National Confederation of Shopkeepers (CNDL), the number of delinquents has risen in Brazil and already amounts to approximately 62.9 million people.

Figures showing how their population grows

money loan

This figure shows that 41% of the population has their social security number restricted or, as we often hear, “with a dirty name”. According to the Consumer Debt and Delinquency Survey (Peic), conducted by the National Confederation of Trade in Goods, Services and Tourism (CNC), the ratio of indebted households rose to 60.7% in September 2018.

Only 13.3% of households claim to be heavily indebted, while 23.8% said they were ‘more or less’ and 23.5% said they had little debt. The percentage of households who declined to be able to pay their arrears or debts – and would therefore remain in default – increased from 9.8% in August to 9.9% in September 2018. The big villain of this story is the credit card: 76.7%. That is: 8 out of 10 Brazilians have credit card debt. In second place are booklets (14.6%) and close behind car financing (10.2%).

But why do Brazilians get into such debt?

debt

We believe that the main reason for debt is cultural, that is, it is a behavior rooted in the life of the Brazilian.

For example, when we want a good one, it is often impulsively bought, and the most frequently asked questions in the minds of these consumers are, “How many installments can I afford it?” Or “How much is the parcel?” This is not natural in other countries. In European countries and the United States, for example, the most common question is, “If I add X a month, how long can I get this good?”

That is, we are used to paying for things of the past, goods that we have already satisfied the desire. Another important factor to take into account is that families acquire debt is the fact that they have an extremely tight and unreserved composition of expenses, ie there is no flexibility for anything.

So when this family needs to buy something, the budget doesn’t allow it to be paid in cash, and of course the way is debt. 

As we have seen, one of the great villains of the financial health of Brazilian families is the credit card. With more credit, many people have purchased a range of products and services without properly managing their personal cash flows.

They do not take into account fixed costs such as rent, energy, water, telephone, condominium etc., and now pay the so-called “minimum” cards. As a result, debts accumulate, so many people borrow to repay them – another source of debt. So, parcel after parcel, many families experience the feeling of being in a real financial snowball.

How to decrease debt production

debt

The first step to reducing debt is to accept that you are in debt and need to get organized. Write down everything you buy on credit, it will make a difference as you will realize where you are investing your money and the size of the credit you have to pay forward.

Create a debt spreadsheet! It will help you gain a broad view of how much and how much money is being spent, as well as giving you greater control of your financial life. Click here to see a spending spreadsheet. Pay your bills on time. Avoid paying charges, interest as it is a money that has no return, and does not add value to you. But if you already have overdue accounts, negotiate with your creditors, ask for discounts, install and pay on time. Use credit to buy products and services that will make sense in your life. Buying on credit on impulse alone can bring regret.

Escape the Debts

debts

Of course, creating a debt to buy a home is not a bad debt. Ideally, you run away from those that add nothing to you.

Bad Debts:

– Consume reserves and salaries;

– Have abusive interest;

– Products or goods that lose value over time;

– generate liabilities;

– In short, a money-sucking machine.

Good Debts:

– increase your reserves;

– As much as they have interest, their profitability becomes higher;

– Products or goods that are in appreciation, exceeding interest and inflation;

– Turn into income-generating assets.

It is very important to plan financially before taking any action. See if the debt you are about to borrow is good or bad, and what percentage of your net income it will need, as well as running away from abusive interest.

One exercise we can do every month is to evaluate the debts we have in relation to the lines of credit we have in the market, and when we see an opportunity, we eliminate the most expensive debts for a cheaper one.

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