How Expensive Credit Can Affect Your Personal Finances

What is happening in Argentina?

According to G1, the economic scenario in Argentina has led many workers, especially delivery app workers, to resort to expensive loans to recover their seized motorcycles. This situation creates a cycle of debt, where the need for quick and easy credit, often offered by fintechs at exorbitant interest rates, becomes a financial trap.

For example, Albert Quintero, a delivery worker who earns an average of 70,000 Argentine pesos per day, faces fines and fees that can cost up to 140,000 pesos to recover his motorcycle. This amounts to two days' work, but many cannot afford this amount without further indebting themselves.

Why does this matter?

What happens in Argentina may reflect the reality of many Brazilian workers, especially in times of economic crisis. The rising cost of living and financial difficulties can lead to greater dependence on credit, particularly in a scenario where interest rates are high.

In Brazil, concerns about household indebtedness are also growing. Many people struggle to balance their budgets and end up opting for loans that ultimately weigh heavier on their pockets. Private credit, which represents a significant portion of the Argentine economy, is also growing in Brazil, which could bring similar risks if not well managed.

The practical impact on your finances

For someone earning a salary and paying bills, the situation is alarming. When you find yourself in a situation where you need to resort to high-interest loans, it's crucial to understand how this impacts your budget. Imagine you earn BRL 2,000 a month and, in an emergency, need a loan of BRL 500 with an interest rate of 120% per year. In the end, you could end up paying much more than the borrowed amount.

With rising debts, many end up compromising their monthly budget. The 50/30/20 method can be a useful tool to help you organize your finances and avoid entering this cycle. Allocate 50% of your income for needs, 30% for wants, and 20% for savings or debt payments. If you are in debt, prioritize debt payments in the 20% category to escape this cycle as quickly as possible.

What can you do?

• Assess your debts: Make a list of all your debts, including interest rates and terms.
• Cut unnecessary expenses: Review your budget and see where you can save.
• Negotiate your debts: Talk to creditors to try to negotiate better payment terms.
• Prioritize your emergency fund: Try to save a little each month to avoid resorting to loans in the future.

Connecting all this to your financial organization

Understanding how expensive credit can affect your finances is essential to avoid unpleasant surprises in the future. Using a platform like ADXIS can help you monitor your spending, organize your budget, and, most importantly, avoid debts that could compromise your financial health. Remember: credit should be a tool, not a trap.