The risk of over-indebtedness arises when the level of the credits and the expenses that one has to pay every month reaches a critical threshold. The consequence is that one can end up in incident of refund, or even stuck to the Bank of France. There are, however, ways to deal with overindebtedness. Overview.
What is the overloading?
According to the definition of the Francia Bank, one is in a situation of overindebtedness if one does not reach, in spite of his efforts and in a durable way:
- to repay his monthly payments of credit;
- and / or more generally to deal with his non-professional debts.
Over-indebtedness is no longer defined by a maximum debt ratio, but by the inability to pay its monthly payments. There are several causes for over-indebtedness:
- Generational self-help: older people who have to help their descendants;
- the trivialized use of credit: people who use the revolving credit too often, without paying it back;
- the budget constrains: 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-accountability
The consequences of over-indebtedness is that the debtor is finally in the event of a reimbursement incident, or even a payment incident. These two cases are not to be taken lightly:
- in the event of repeated repayment incidents, the credit institution may demand full debt settlement, putting the borrower in a difficult situation;
- In the event of a payment incident, it triggers an entry in the Francia Bank’s National Credit Repair Incident File (FICP). This registration immediately entails the impossibility of contracting any new credit, but can be erased if one settles his situation quickly.
We must not wait to be in debt distress to react, but take action as soon as possible to reduce its debt.
Risks of the revolving credit?
Revolving credit, or revolving credit, is a form of consumer credit that must be used sparingly because it gives the impression of having a piggy bank from which one can draw when needed. This has the effect of considerably increasing its debt:
- if you use 3,000 euros, the monthly payments are only 50 euros;
- if you use 7,500 euros, monthly payments go to 200 euros;
- if you use 18,000 euros, monthly payments reach 500 euros!
In addition, the cost of this type of credit is the most expensive on the market with that of overdraft authorized. It can be 20%!
The classic consumer credit or personal loan determines in advance the monthly payment that will be refunded and remains the same throughout the credit period. So, no bad surprises and you can manage your budget more easily.
How to define your debt rate?
The debt ratio is the ratio of the repayment of credits that one has contracted with respect to income.
One can easily calculate one’s debt ratio thanks to this formula:
- Debt ratio = (borrowing cost) × 100 ÷ (net income)
If this calculation seems complicated, it is even easier to use a financial calculator or simulators online debt ratio.
The maximum debt ratio is considered to be 33%. It is in any case on this figure that most credit organizations are based to take 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 willingly exceed 40%. The difference lies in the rest to live, higher in the second case.
How to avoid the overview?
There are several ways to avoid over-indebtedness:
- you must first get involved in monitoring your budget;
- Do not buy blindly and use credit without calculating the weight of it on your budget;
- saving is a good way to cope with the vagaries of life;
- the repurchase of credit can reduce the debt ratio.
In any case, we must act as soon as we feel that we are in a difficult situation, even if it is only temporary: it avoids many costs.