Household debt is a serious problem in Brazil. Currently, a large portion of Brazilian households have at least one debt. Because of this, many people live with anxiety and stress.

Besides suffering considerably from the situation, people also find themselves further away from their financial goals. After all, having a negative credit history makes it harder to achieve consumer dreams.

But what are the most common causes of this debt? If we find out, can we avoid this situation?

Let's look at the answers to these questions below!

Overview of household debt levels in Brazil

If you are currently in debt, there's no need to be ashamed. This is a very common situation in Brazil these days, did you know? According to data from the CNC (National Confederation of Commerce of Goods, Services and Tourism), approximately 67.4% of Brazilian families declared themselves to be in debt in July 2020. This is the highest level recorded since 2010.

The survey also indicated that 15.5% of families declared themselves as "very indebted," an increase of 2.2 percentage points compared to the same period last year. In terms of duration, the survey indicated that for more than a third of those in debt, the commitment lasts for more than a year.

Main causes of indebtedness

It's true that household debt levels are high in Brazil. After all, almost 7 out of 10 Brazilian households are in debt.

But why does this happen?

There are some common reasons for household debt. This doesn't mean they cover every case, of course. After all, each family has its own unique story. However, understanding the most common reasons can help us avoid them.

Unemployment

The main reason for indebtedness is quite obvious when you think about it: unemployment. If people aren't employed, they don't receive a salary. If they don't have money, they can't pay the bills, right?

Currently, the unemployment rate in Brazil is 11.9%. This means that approximately 13 million people are unemployed.

Debt often arises in these cases, when a person is caught off guard by being laid off shortly after committing to an installment purchase, for example.

To complicate matters, even those who have managed to find new jobs struggle with debt. This is because the new salary is usually lower than the old one, making it impossible to cover the same expenses as before.

Lack of financial education

One reason that increases the chances of getting into debt is the lack of financial education among the population. After all, the economic mechanisms of the market can be somewhat complicated to master. A mistake when dealing with revolving credit card debt, for example, can turn into a debt that is difficult to manage.

The less financial education one has, the easier it is to make this type of mistake and the greater the chances of accumulating debt because of it.

Improper use of overdraft or revolving credit

Revolving credit or overdraft facilities are tools for emergency situations. However, if misused, they can become the villains of your financial life.

The reason for this is quite simple: they have the highest interest rates on the market.

Therefore, a small debt can quickly turn into a huge one. That's why you need to be very careful when using overdraft facilities or revolving credit.

Excessive consumption

Taking advantage of a sale can be a great way to finally buy that product you've been eyeing for a while. However, it can also be a way to get into debt.

That's because impulse purchases are a fertile source of debt. The reason for this is easy to understand: if we buy without planning, we can exceed our spending limit. If we can't pay that month, the debt goes into the revolving credit card balance (or overdraft) and starts accruing interest.

This is a typical scenario where the "new ball effect" creates enormous debt.

Tips to avoid debt

Understanding the causes of household debt is the first step to avoiding it. However, it's not enough to just know what causes debt, is it? You also need to know how to act to avoid problems with it.

Therefore, check out some good practices below that can reduce your chances of getting into debt.

Investing in financial education

Remember that one of the reasons for household debt was the low level of financial literacy in Brazil? Therefore, you can reduce the risk of getting into debt if you learn more about these tools.

We know that financial education can be a little intimidating. After all, "economics jargon" is a language that scares us. However, it's not difficult to learn the basic mechanisms of your financial life. With a little dedication (and good teachers) you can learn what you need to know.

An easy way to learn more about this topic is to follow our Blog and our Social Media. Here, we discuss various essential topics for your financial life, teaching you how to manage money and avoid debt. All in an accessible and straightforward way.

Write down all expenses

One way to control spending and avoid debt is to write down all your purchases. If you don't like using pen and paper, you can use a financial organization app.

This way, you have better control over how much you can spend at any given time of the month. Did the 15th arrive and you went a little over your budget for that period? No problem. You can correct it in the second half of the month.

Avoid impulse purchases

Impulse buying is the gateway to excessive consumerism. The consequence of this behavior is debt, since there is a limit to how much we can afford to pay each month.

Therefore, ideally you should avoid impulse purchases. Of course, it's easier said than done, but there are some techniques that can help with this. See below:

• Do not have quick access to your money and/or card;
• Use the "rule of time." When you want to buy something, force yourself to wait a few hours or days to see if you really want to buy it or if it was just an impulse;
• Avoid visiting promotional or sales websites;
• Check if you already have the item (or something similar) at home.

Household debt, as we have seen, is a serious problem in Brazil. However, it is a situation that can often be corrected with financial education, personal control, and organization.

If you want to take a step forward in your financial education and become more independent in this area, how about starting by negotiating your debts with discounts and payment plans that fit your budget?

To do this, simply visit the Descomplica Finanças website!