In debt? Make the diagnosis of your debts!

 

According to a survey by CommercioSP, 53.6% of Sao Paulo families were indebted in February 2018. This means that 2.09 million families had some kind of debt to pay, only in Sao Paulo!

So if you have some kind of debt right now you are probably on the same team as most families!

Being in debt does not necessarily mean having a bad financial situation. For example, the family may have a debt related to the financing of a home, but all installments are paid on time and there is no increase in debt. That is, there is good planning and financial control that allows the family to take on longer term debt without compromising their financial health.

Unfortunately, it seems that this is not the reality of most families. The same survey points out that for 74.4% of indebted households, credit cards are the main source of debt. And we all know that card debt is among the ones that charge the highest interest rates!

For you who are in debt, here are some basic questions to better understand if your debt is bad or good:

 

1) Is the debt you have related to credit card or overdraft?

credit card or overdraft?

These are the worst debts you can have, as they are the ones that charge the highest interest rates. Escape them, try to renegotiate them and swap for lower interest debt, such as personal finance.

 

2) Is the total amount of debt decreasing month after month? Or is it increasing?

debt decreasing month after month?  Or is it increasing?

This is a simple way to analyze if you are able to pay the amounts due. Your total debt has to decrease every month. If this is not happening, you are creating an incredibly dangerous snowball: the more you owe, the more interest you must pay; To pay them more debts are made out there goes.

 

3) Was the debt made from Financial Planning and Control?

3) Was the debt made from Financial Planning and Control?

As we said above, you can seek financing for a more expensive asset (such as a house or an apartment), provided that this is accompanied by good Financial Planning and Control. You need to know if the installments match your personal budget by analyzing all your expenses and income.

 

4) Was the debt made to pay nonessential items?

debt made to pay nonessential items?

Nonessential items are those that could be purchased at a later time (not now) and yet our quality of life would not change significantly. For example, there are people who already have a good but used car. And yet they finance the purchase of a new, more modern car… and more expensive too. The ideal in this case would be to delay the time of this purchase until it was possible to pay the car in cash. And it is no use using the excuse that “the financing interest was low”, no interest is more advantageous than paying the cash!

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