A young 19-year-old was offered a credit card by his bank and decided to accept it. He made purchases throughout the month and was surprised when he received the bill. Despite having spent more than he imagined, he saw that the bank offered the possibility of making only a minimum payment, of 15% of the total amount spent. He had no doubt: he chose this option. Unaware, he imagined that it was a “gift” from the bank and continued making purchases with the card during the following month. When the second bill arrived, he was shocked: not only were the new purchases there, but also the increase in interest on the debt not paid from the previous month. Without being able to pay the full amount, his debt increased with interest on top of interest, until it became unpayable.
This story is fictional, but it has certainly happened to many Brazilians. According to data from the Confederação Nacional de Dirigentes Lojistas (CNDL), credit cards are responsible for 31% of overdue bills, which led to consumers accumulating debts. This is because the interest charged by banks on credit card bills is very high — it reached 445% per year in July, according to the Central Bank of Brazil.
To try to reduce the level of debt, the government, the Central Bank, retailers and financial institutions have discussed changes to the rules for using the credit card.
Roberto Campos Neto, president of the Central Bank of Brazil, has been stating that the solution is to end revolving credit, which is when the customer does not pay the full bill, this debt rolls over to the next month and the bank charges high interest on it.
According to Central Bank data, the number of credit cards in circulation has doubled in the last 4 years. It went from 99 million, in December 2018, to 209 million in 2022. Quick access to credit cards combined with the lack of financial education makes the scenario even more critical for default levels.
According to the Confederação Nacional do Comércio (CNC), 78% of Brazilian families had some debt until May this year. The interest that accrues on the unpaid value can multiply the debt five times in just one year. Check it out in the simulation.
Sources: Serasa, CNDL, Folha de S.Paulo and O Globo.
Option 1
THE USE OF REVOLVING CREDIT
There is the possibility of making a minimum payment of 134,83 reais, using the revolving credit. In this case, consider an interest rate of 14% a month, the debt would be of 1.031 reais the following month and, at the end of the year it would reach 4.670 reais.
Option 2
PAYING FIXED INSTALLMENTS
Here, the owner of the credit card choose to pay the total value of 898,85 reais in fixed installments. It was be 23 installments of 99,14 reais, which would be equivalent to a final value of 2.280,22 reais, over double the amount that was spent.
23 x 99,14 = 2.280,22
