Indebtedness of families drops in Brazil for the first time in 13 months

RIO DE JANEIRO, BRAZIL – After 13 consecutive months of high, the indebtedness of Brazilian families fell in January in the country. This is what the National Confederation of Trade of Goods, Services, and Tourism (CNC) points out, released on Monday (7).

Despite the drop in the indicator, approximately 76% of Brazilians have some debt to pay.

In January, the indebtedness of families dropped 0.2 percentage points, as shown in the survey.

The last fall had occurred in November 2020, when the percentage of Brazilians with debts fell 0.5 percentage points. At the time, debt reached 66% of the population.

Experts interviewed by CNN highlight the rise in interest rates as the main “brake” to the advance in debt contracting.

Last Wednesday (2nd), the Monetary Policy Committee (Copom) decided to raise the basic interest rate’s Selic to 10.75%.

This was the eighth consecutive increase, a cycle that started in April 2021.

Besides the interest rate hike, the coordinator of FGV’s MBA in Financial Management, Ricardo Teixeira, mentioned two other essential factors for reducing indebtedness in the country.

“The first factor we need to consider is the payment of the 13th salary, an additional amount that workers received at the end of the year. Historically, this payment helps Brazilians pay off their debts. Besides these factors, we have political instability, which grows with the approach of the elections,” said Ricardo Teixeira.

“At these times, people tend to be more cautious; they take on less debt. All this is added to the interest rates that curb indebtedness.

Even with the drop in January, the level of indebtedness of Brazilians remains high. The CNC survey shows that 76.1% of families have some bill to pay.

The survey also points out that among the indebted, 10.1% report that they are “very indebted” and, therefore, will not be able to pay the overdue bills.

Meanwhile, 26.4% of people say they are “more or less indebted”, while 60% say they have little debt.

The CNC data consider the following credit lines: post-dated check, credit card, overdraft, store credit cards, consigned credit, personal loans, car, and house mortgages.

Among all the modalities, the credit card appears as the most prominent “villain” among Brazilians, representing more than 80% of all debts.

In the second position appear the payment books, responsible for 20% of the debts.

According to the survey, the composition of the debts of Brazilian families presented some disparities between income groups.

People with income below ten minimum wages suffer most from default, representing 77% of the indebted population in the country. For this group, the credit card is the biggest villain.

Credit cards are the most used method for getting into debt for the income bracket above ten minimum wages. According to the survey, financing a car and a house impacts the family income of this group the most.

With information from CNN