Drop in Interest Rates Creates Opportunity to Renegotiate Debts

RIO DE JANEIRO, BRAZIL – Bill No. 3.515/15, which provides tools to avoid over-indebtedness and promote financial education, is currently being considered by a special committee in the Chamber of Deputies. The proposal approved by the Senate was suggested by jurists specialized in Consumer Law.

Experts interviewed by Agência Brasil are in favor of measures to contain borrowing and unnecessary expenses. “We need to change the population’s culture to one of savings and not of indebtedness. New debts mean worse quality of life”, says judge Caroline Lima, from the Judiciary Center for Conflict Resolution and Citizenship – Over Indebted (Cejusc/Super) operating in the Court of Justice of the Federal District (TJDFT).

“Materialism prevails and everyone is led to this growing need to increase assets, which can lead to over-indebtedness. There is a compulsion for consumption. We have no tradition of savings and reserves”, adds Judge Ana Maria Duarte Amarante.

According to her, the ease and incentive to consume through the Internet aggravates the situation. “Technology is rigged against individuals. They know everything. There are algorithms on spending and preferences,” cautions the judge when commenting that “only a third of the Brazilian population has some form of savings”.

This ratio also negatively impresses administrator Annalisa Blando Dal Zotto, an expert in financial planning. According to her, we need to save more and spend less. “The only healthy debts are financing guaranteed by assets, such as houses and cars, as long as they are not much higher than the SELIC rate“.

According to Dal Zotto, the recent reduction in the SELIC rate to five percent a year “is an opportunity to renegotiate debts”. However, she cautions that the basic interest rate is at its lowest level in history, but other rates remain extremely high. “The SELIC stands at five percent, but taking any kind of loan is still very dangerous. [Bank account] overdraft interest stands at 250 percent a year. A secured loan is still 30 percent a year,” she says.

“The reduction is positive. It’s time to demand renegotiation,” suggests judge Caroline Lima. She alerts to the risks of new financing. “Although the fees are lower, the banks are charging higher costs. One needs to look at the final cost of debt. If the total cost is in fact decreasing. I did a real estate financing simulation out of curiosity and saw that they are increasing,” she says.

For psychologist Amália Raquel Peres, who is following the Cejusc/Super mediation in a research and extension project, “the issue is not only interest but the ease with which you can withdraw money. The speed in getting a loan is very bad”, she complains.

“Easy credit works as a trigger to solve things. People go from overdraft to credit cards, from credit cards to loans. Soon they’re way over their heads and drown. But it’s not about bad intentions, it’s disorganization,” she adds.

Peres analyzed approximately 1,500 cases of over-indebted individuals who have applied for renegotiation with creditors through Cejusc/Super since 2015. She emphasized that almost all over-indebted individuals are employed, have a cultural background and are stable.

“Eight out of every ten over-indebted individuals in Brasília are civil servants. The banks want guarantees that whoever will get the loan is able to pay it back. A public employee has collateral,” she says.

In her opinion, there is no prevailing reason for over-indebtedness, but a set of reasons. “It is a pluralist context with a component of mental illness, power, culture, social support, and economic conditions”, she enumerates.

The psychologist suggests that people try to lead a simpler life: “We don’t have to rush out to the graveyard. Why do I need to bring more to this routine that is already hard? Let’s wait. Whatever isn’t coming now can wait until next year. Let’s live our lives and not rush into doing things. Doing less with more quality can be better” she recommends.

Source: Agência Brasil