Revolving cards and BNPL are two potential forms of over-indebtedness, which can have serious consequences for consumers
Over-indebtedness is one of the biggest financial problems a family can face, because of the terrible consequences it has. When we refer to the health of our finances, we are focusing precisely on everything we need to do to prevent situations of over-indebtedness that lead to non-payment of our debts. The debtor will have the right, in such a scenario, to claim what we owe, which can lead to the loss of mortgaged assets, such as the habitual residence itself.
When can we start to think that we are in a situation of over-indebtedness?
When our income starts to be insufficient to cover the debt incurred and we have to resort borrowing and lending more than is advisable.
How do we get into debt?
When we borrow money, which is technically understood as applying for financing, from banks, which is the most common way, or from other financial institutions and even from moneylenders outside the banking circuit. There is also an informal lending circuit between family members or simply individuals. This is also debt, which must be repaid.
Financial consumers can also get into debt through credit cards or other more dangerous types of credit cards, such as revolving cards, or those with BNPL (Buy Now, Pay Later), which facilitate over-indebtedness.
Why should I be careful with revolving cards?
This product, which is highly controversial and liable to be challenged in court, does not offer credit as such, or what a financial consumer might understand as credit. In other words: I ask for money on credit and, after the stipulated period, one month in the case of credit cards, a little more in the case of consumer credit (several months, a year…), I pay off the debt with the corresponding interest payment. With revolving cards, there is no term.
In a revolving card, the user does not agree with the bank the term for repaying the debt contracted, only the installment through which the amounts will be repaid. It is the closest thing to having an open credit line. Moreover, the debt is paid in installments that are generally very small. The money owed, which remains unpaid, month after month, is charged at very high interest rates, in most cases over 20%.
Conclusion? With a revolving card, we can generate an accumulation of money and interest that can become unbearable. As we “keep pulling the card”, month after month, the capital owed and the interest are multiplied.
What is the danger of BNPL?
This modality, accessible from many of the cards that are currently marketed in our country, allows us to defer, normally free of charge, a large part of the purchases we make and the debt we have contracted.
What is the problem? Even if it is at no apparent cost to the consumer, it invites them to contract debts and enter the credit circuit. Moreover, the institutions facilitate and even promote deferred payment. At a given moment, we cease to have control over our finances, and we approach a situation of over-indebtedness.
The debit card as a spending control instrument is a measure to avoid over-indebtedness by charging purchases on balances. While deferred debit cards allow purchases to be made over the balance, because of the possibility of splitting transactions at the time of purchase and afterwards.
