In the current economic context it is increasingly common for Argentines to have to face expenses for which their income is insufficient. In those cases, and to meet their objectives, the vast majority ends up going into debt.
While credit is an accessible tool, if it is not used responsibly you can end up falling into a very complex situation. Because not being able to continue paying the credit card is one of the risks that brings consequences in the short term, but that can also generate future repercussions in the financial life of users.
It is for this reason that many people end up choosing to make the minimum payment of the card to refinance their debt and avoid delinquency, but what are the consequences of this alternative?
Paying the credit card minimum can be a double-edged sword when it comes to financing debt. Photo: Archive.
Credit cards: what is the minimum payment and how does it impact future debt?
The minimum payment is the smallest amount required by the bank to maintain the credit in force on the credit card, without reporting delinquencies. It is a percentage of the total debt to be paid for the use of the card and the outstanding installments of the month that will depend on the bank and the expense made. The figure can be found on the account statement.
Used correctly, two advantages of the minimum payment can be noted:
The customer is up to date with the credit card and it is prevented from being disabled.
Recently the Central Bank increased its reference rate, which went from 47% to 49%. In this way, refinancing credit card balances when the minimum is paid or the total of what is consumed in the month is not paid rose to 53% nominal annual.
How does it impact outstanding debt? When only the "minimum payment" is paid, the unpaid balance is carried over to the next month with an interest rate. However, as with the rest of the loans, there are additional costs to the interest rate, such as taxes and administrative expenses.
While the refinancing rate is limited by the Central Bank, the rest of the charges and commissions vary depending on the bank of which you are a client, which makes the debt higher. This is what is known as Total Financial Cost (CFT), which currently for financed balances less than $ 200,000 is around 77%.
In the event that the balance to be financed is greater than $ 200,000, or that in the month the person has made consumption greater than $ 200, the Total Financial Cost that exceeds 90% will be applied.
In this context, as explained by the director of the consultancy Focus Market, DamiánDi Pace, to Clarín, "using this resource periodically can become a long-term financial problem."
This means that, by doing it month by month, the debt with the bank will not only extend over time, but will also accumulate interest. The recommendation is, whenever possible, to pay more than the minimum. This action, although small, directly decreases the amount of extra interest. It is a way to cancel the credit in less time and to have space available on the card.
If used correctly, the minimum payment allows you to stay current with the credit card and prevents it from being disabled. Photo: Shutterstock.
What are the consequences of not paying – not even the minimum – of the credit card?
Not paying the credit card or paying less than the minimum is the worst of situations. First, because the card is disabled and the holder can no longer use it. Second, because if this situation is not closely monitored, the accumulation of interest could even exceed the initial value of the purchases.
In this sense, Di Pace explained that "if the minimum payment of the credit card is not made, it is refinanced at a Total Financial Cost (CFT) of 153% year-on-year, which represents approximately almost 13% per month of the total debt".
For its part, as explained by the advisor of the Consumer Defense Commission of the Buenos Aires Legislature, Carolina Suárez, "when the holder of a card becomes delinquent is immediately intimated by the bank."
Meanwhile, he explained "when there is a certain period of notifications for non-payment, a precedent is set that debts were not fulfilled in the databases of the Central Bank (BCRA), which is where private databases such as the Veraz, among others, are reported."
According to Suárez, "this situation prevents the person from being able to manage freely in what has to do with the contracting of banking financial products, such as taking out another credit card, requesting a loan, or a guarantee to rent."
LN
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