Over-indebted Brazilians: ‘I sold the washing machine to pay rent, now I owe installments on the machine’

“So, guys, we need help. Last month we paid for Maria’s exams, and things got out of hand… We can’t pay part of the rent, neither electricity nor water. We’re asking for help to pay late bills .”

Jaqueline Alves, 31, resident of Canoas, in the metropolitan region of Porto Alegre, is one of the millions of Brazilians who started the year very indebted and, therefore, she made this appeal on a social network.

“The bills for this month will probably be delayed, but the important thing is to pay the oldest ones so we don’t run out of roof, water and electricity… Tomorrow, God will provide!”, she said.

Jaqueline is married and the mother of three – two boys aged 15 and seven and a girl aged four, who has a rare disease.

The only income of the family, which has frequent extraordinary expenses with the health of the youngest, is a pension of a minimum wage (R$ 1,212 currently) that Jaqueline’s husband receives because he also has a disability.

Part of it goes to the bank as soon as it falls into the account, to pay installments of past loans, which have the pension as a guarantee. There’s just over R$ 700 left to support the family for the month.

Jaqueline has overdue bills for several credit cards, in addition to her basic household bills, adding up to debts that already exceed R$20,000. “Cards end up becoming a way for us to pay our bills,” she says.

“Sometimes we need to buy medicine, buy it on the card, then the bill arrives, we can’t always pay the minimum, and it snowballs. We push, we pay the oldest and leave the newest for later. But we never managed to pay off the debts completely.”

Since the birth of their daughter, the couple has depended on the help of acquaintances, friends and family every month.

“But now, with this crisis, we are no longer able to collect the amounts to keep our accounts up to date. Even solidarity reaches a point that doesn’t arrive in time. Because it’s not just that it’s difficult for us, it’s difficult for those who help too”, says Jaqueline.

Her case is extreme, but the advance of indebtedness and default by Brazilian families is a reality for the country as a whole.

A person is only considered indebted when he has a financial commitment, but pays on time. It defaults when it fails to pay the debt on time.

Both the percentage of indebted and defaulting families have been breaking records since last year and are at their highest level in 12 years.

And the trend is that defaults will rise even more in 2022 because of the increase in interest rates and the end of emergency measures created in the pandemic to help the indebted.

The war in Ukraine is likely to worsen this scenario, by causing an increase in inflation, which reduces the family income available to honor financial commitments.

At the end of February, the Minister of Economy, Paulo Guedes, reported that the government is studying releasing resources from the FGTS (Fundo de Garantia do Tempo de Serviço) to help indebted families, but did not give a date.

record debt

The average level of indebtedness of Brazilian families over 2021 reached 70.9%, the highest value until then, according to Peic (Consumer Indebtedness and Default Survey), from CNC (National Confederation of Commerce of Goods, Services and Tourism ).

The level was 76.3% in December, a historic record. In February of that year, the record was broken again: 76.6%.

“Indebtedness has been accelerating over the past year”, says Izis Ferreira, economist at CNC. “We’ve never had in the historical series — which starts in 2010 — a year in which indebtedness has grown so fast.”

According to her, families resorted to credit for different reasons depending on income.

“For those with lower incomes, up to ten minimum wages a month, the very rapid advance of inflation has deteriorated the budget of these families”, observes Izis.

She highlights that, in the 10% rise in inflation in 2021, items that have a strong impact on family income, such as gasoline (price increase of 47%), electricity (21%), food (8%) and medicines (6%).

Meanwhile, the household income of Brazilians fell 10.7% in the fourth quarter of 2021 in the annual comparison, the lowest level in the historical series, which began in 2012.

“This made these families need to use more credit cards, overdrafts and resort to store booklets to maintain their level of consumption”, explains the expert.

For the richest families, with a monthly income above ten minimum wages, the first factor in the increase in indebtedness was the very low interest rates at the beginning of 2021.

The Selic (basic interest rate for the Brazilian economy), which is now at 10.75% per year and with the prospect of exceeding 12% in the coming months, started last year at 2%, the lowest level in history.

“These families took the opportunity to buy real estate, cars, in a context of still favorable interest”, says the economist.

A second factor was the slowing down of the pandemic with the advance of vaccination throughout 2021, which made these families go back to consuming services, such as travel, which contributed to more indebtedness.

Bad debt and high interest rates

The CNC economist notes that, throughout 2021, despite the increase in indebtedness, delinquency remained low for most of the year, and the annual average stood at 25.2%.

But the rate began to rise from October onwards. In that month, 25.6% of families had overdue bills. It was 27% in February this year, the highest level in CNC’s historical series, which began in 2010.

Among families with an income of up to ten times the minimum wage, the percentage already reached 30.3%, in the most recent data available.

Iziz Ferreira assesses that, in 2022, indebtedness should remain high, above 70%. “But, depending on the interest and the difficulties faced by families, it shouldn’t grow much more than that.”

Default should continue to increase, especially in the first half of the year, says the economist.

“Default should continue to reach the highest levels in the historical series”, believes the economist, citing the greater difficulty of families to renegotiate debts in an environment of high interest rates.

In addition to slowing down new borrowing and making debt renegotiation difficult, high interest rates tend to slow down economic activity.

This impairs the performance of the labor market and may make it difficult to adjust wages above inflation, keeping Brazilian households’ budgets tight, which tends to contribute to delinquency.

Basic accounts overdue

A particularity of the current default is the increase in basic bills such as water, electricity and telephone in arrears.

According to data from Serasa, basic accounts already represented 23.9% of debts in December 2021, compared to 20.4% in the same month of 2020.

Debts with accounts were only surpassed at the end of last year by debts with banks and cards, which represented 27.7% of the total.

Fernando Gambaro, coordinator of Serasa, says that part of this increase is due to high prices, particularly light.

However, this type of default indicates a worsening of the family income situation, since in general people prioritize basic accounts in times of tightness.

A delay in these accounts, therefore, reveals a situation of extreme financial difficulty.

‘We sell the washing machine to pay the rent’

This is the reality that Cascileia Carvalho da Cunha, 21 years old and resident of Anápolis, Goiás, lives in today.

Mother of a four-year-old and seven months pregnant, she and her partner are unemployed. She for the advanced pregnancy and he, after being fired in December from his job as a stockist.

The couple is behind on rent (which includes electricity and water) and credit card debt.

“I bought a washing machine to be able to wash the baby’s clothes, but we had to sell it before finishing paying, to pay a previous rent. Now, the installments of the machine are also late”, says the young woman.

Desperate with debts, Cascileia’s companion tried to take out a loan. With no access to credit in the financial market, he turned to Facebook groups. But the people who said they were willing to help were actually scammers.

“Everyone wanted a deposit of R$7, R$50 or even R$100 to make the loan. They said he had to make a down payment. He even deposited R$7, and the person immediately blocked him”, says Cascileia. “I’m glad it was only R$7… It’s very difficult.”

Credit card debts

Although basic accounts had the highest growth in participation in Brazilians’ debts in 2021, the credit card remains unbeatable as the main form of indebtedness for families.

“Sometimes, we have a slightly erroneous view of the credit card and imagine that they are high bills, purchases that can be paid in installments”, says Gambaro, from Serasa.

“But when we analyze which purchases are being made with credit cards by Brazilians, practically 70% of them are in supermarkets and food. analyst.

It is necessary to take into account that the revolving card – when the person leaves part of the invoice to pay later – is the most expensive type of credit in the country, with average interest that reaches 345% per year. Thus, indebtedness on the card should be avoided at all costs, but this is not always possible.

“The pandemic has affected the payment of basic bills in a different way. Because people do understand the priority of these accounts”, says Gambaro.

“Brazil has a difficulty due to low income and lack of financial education, but if people could choose and had the financial conditions to do so, they would certainly choose to pay basic bills at first. Research shows that.”

Are you in debt? What to do

Izis Ferreira, from CNC, says that one way to avoid default is to put the entire family budget at the tip of a pencil to get an idea of ​​how much goes in, how much goes out and where to cut.

It is also necessary to have a clear vision of how much the family owes and how much of the income it can use to pay the debt, says Gambaro, from Serasa.

Then, renegotiate the most expensive debts, such as the card, exchanging for a cheaper one, such as a personal credit, for example.

From there, try not to get into more debt, giving up the cards or, if that is not possible, keeping a label on each one with the amount of the remaining invoice, to remind you of the cost of using the card.

For those who are already in default, the CNC economist says that the path is to cut superfluous expenses and renegotiate debts to reduce the total, interest and size of installments, so that they fit better in the budget.

Gambaro says that there are many debt renegotiation options on the market, such as fairs and online applications, where the person can pay debts in installments and, after paying the first installment, their name is cleared again.

“People think that renegotiation is a lengthy process, which takes time, but through the website or the application, it takes minutes”, says the expert.

He warns, however, that consumers should be careful not to fall into fraud.

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