The risk of over-indebtedness arises when the level of credits and charges that one has to pay every month reaches a critical threshold. The consequence is that we can find ourselves in a reimbursement incident, or even stuck with Good Finance. However, there are ways to deal with over-indebtedness. Overview.
WHAT IS OVER-INDEBTEDNESS?
According to the definition of Good Finance, we are in a situation of over-indebtedness if we do not succeed, despite our efforts and in a sustainable manner:
- repay monthly credit payments;
- and/or more generally to deal with non-professional debts.
Over-indebtedness is therefore no longer defined by a maximum debt ratio, but rather by the inability to be able to pay your monthly payments. There are several causes for over-indebtedness:
- generational support: elderly people who must help their descendants;
- the common use of credit: people who use revolving credit too often, without repaying it;
- the constrained budget: people who alternate work and inactivity phases, making their financial situation unstable, requiring borrowing;
- loss of employment and therefore of income;
- life events such as divorce, death, etc.
THE CONSEQUENCES OF OVER-DEBT
The consequences of over-indebtedness are that the debtor is ultimately in repayment incident, even in payment incident. These two cases are not to be taken lightly:
- in the event of repeated repayment incidents, the credit institution may demand total settlement of the debt, putting the borrower in a delicate situation;
- in the event of a payment incident, it triggers a registration in the Good Finance (FICP) National Credit Repayment Incident File. This registration immediately results in the impossibility of contracting any new credit but can be deleted if the situation is resolved quickly.
You must not wait until you are in debt to react, but take measures as soon as possible to reduce your debt.
THE RISKS OF REVOLVING CREDIT?
Revolving credit, or revolving credit, is a form of consumer credit that should be used sparingly because it gives the impression of having a piggy bank from which one can draw whenever one needs it. This has the effect of considerably increasing its debt:
- if 3,000 dollars are used, the monthly payments are only 50 dollars;
- if 7,500 dollars are used, the monthly payments increase to 200 dollars;
- if you use 18,000 dollars, monthly payments reach 500 dollars!
In addition, the cost of this type of credit is the most expensive in the market with that of the authorized overdraft. It can be 20%!
The conventional consumer credit or personal loan determines in advance the monthly payment that must be repaid and which remains the same for the duration of the credit. So, no unpleasant surprises and you can manage your budget more easily.
HOW TO DEFINE YOUR DEBT RATE?
The debt ratio is the ratio of repayment of loans that one has contracted to income.
You can easily calculate your debt ratio using this formula:
- Debt ratio = (borrowing charge) × 100 ÷ (net income)
If this calculation seems complicated, it is even easier to use a financial calculator or online debt rate simulators.
The maximum debt ratio is considered to be 33%. It is in any case on this figure that most credit organizations base themselves when taking out a personal loan.
Note that this figure is relative because it depends on the importance of household income. A low-income household will be notified not to exceed 30%, while a high-income household may more readily exceed 40%. The difference lies in fact in the remainder to live, higher in the second case.
HOW TO AVOID OVER-INDEBTEDNESS?
There are several ways to avoid over-indebtedness:
- you must first get involved in monitoring your budget;
- do not buy blind and use credit without calculating the weight of it on your budget;
- savings are a good way of coping with the vagaries of life;
- the repurchase of credit can decrease the debt ratio.
In all cases, you must act as soon as you feel that you are in a difficult situation, even if it is only temporary: this avoids many costs.