Record Delinquency Among Families: What to Do When Debts Accumulate and When to Consider Refinancing a Loan

Credit has become part of the everyday economy for families. Credit cards, personal loans, digital wallets, and various financing alternatives allow access to money in just a few minutes. However, this ease has also raised a warning signal: in a context of record delinquency in over 20 years, more and more households are facing difficulties in meeting their financial commitments.

The problem becomes more complex when financing is no longer used for a specific purchase and starts to function as an extension of monthly income. Refinancing credit card balances, using overdrafts, or resorting to a new loan to make it to the end of the month can temporarily ease the bills, but it can also increase the cost of a debt that becomes increasingly difficult to manage.

In this scenario, a key question arises: What is the best course of action when debts begin to accumulate? Experts consulted by Ámbito agree that the best strategy is not always to try to pay everything off immediately. Identifying which debts are the most expensive, organizing expenses, and eventually replacing an expensive loan with a cheaper one can be part of the solution.

Criteria warns that credit is not a problem in itself. The difficulty arises when it is used repeatedly to finance expenses that regular income can no longer cover.

"Credit is not necessarily bad and can be a useful tool to address a specific need, finance a purchase, or even organize liabilities. The problem arises when it is used to finance recurring expenses or to pay off another debt. In that case, the debt ceases to be a financial tool and begins to become a way to finance a level of consumption that current income cannot sustain," they pointed out.

The first step, then, is to know how much the money borrowed really costs. In this sense, it is not enough to look at the monthly payment or the nominal rate announced by an entity. To compare different alternatives, it is necessary to look at the Total Financial Cost (CFT), which includes interest, commissions, insurance, and other charges associated with financing.

It is also crucial to distinguish between a monthly rate and an effective annual rate. A rate of 10% per month, for example, does not simply imply an annual cost of 120%, as capitalization will generate a considerably higher cost. Therefore, the central question before taking out a loan should not only be how much will need to be paid each month, but how much money will ultimately be returned for every peso borrowed.

The problem is not always the debt, but its cost.

Gastón Lentini, from Doctor of Your Finances, told Ámbito that the first step to getting out of a debt situation is to identify exactly how much is owed and how much each obligation costs.

In finance, rates are simply what defines the price of the money that is lent to us," said the financial education specialist, who suggests identifying debts based on that cost in order to "first pay off the most expensive ones." The logic is similar to refinancing public bonds: if there is an "expensive" debt and the possibility arises to replace it with a cheaper one, it may be advantageous to do so.

690,000 people in Uruguay are considered uncollectible debtors.

"If we have debt with the IMF and we pay 10% annually for that loan, but another organization lends us money at 5% annually, then it will be convenient to take new debt at 5% to pay off the old debt at 10%, because what I am doing is saving, lowering the price I pay for the capital that is lent to me," explained Lentini.

In this sense, the strategy does not necessarily consist of trying to pay off all debts at once. "I do not seek to pay everything together, because I cannot, but to lower the cost by first paying those who charge me more or refinancing at a lower rate," he added.

The second step is to organize personal finances. For Lentini, this means knowing how much money comes in each month and, fundamentally, knowing precisely where it is spent. For this, the expert suggests "setting up a small account." "It is extremely important to understand what we spend," he indicated.

The financial recommendation becomes especially relevant when a person uses different credit instruments at the same time. Credit cards, personal loans, digital wallet credits, and overdrafts may seem like isolated commitments, but together they can absorb a significant part of the monthly income.

When taking out a loan serves to pay another

One of the main warning indicators appears when credit stops financing a specific need and is used every month to make ends meet. In this line, Criteria emphasized that if it is necessary to resort to a new loan every month, use the overdraft, or refinance the credit card balance to make ends meet, "the problem is no longer in the interest rate of a particular debt, but rather that the level of spending is above the available income."

"In that scenario, a new credit may postpone the problem, but it is unlikely to solve it," they added. Therefore, before assuming a new financial obligation, it is advisable to establish a debt limit and calculate what percentage of the monthly income is already committed to installments and obligations.

However, taking a new credit can make sense when it allows canceling a more expensive debt and reducing the total financial cost. The key is that the new loan replaces a more costly obligation and does not simply become a new source of financing for current expenses.

Lentini also focuses on the responsibility of those who lend and those who take the money. "The bank is as responsible for giving credits without looking at who, as are the people taking credits indiscriminately," he stated regarding the problem of increasing delinquency.

In this regard, he questioned the use of financing to sustain expenses that cannot be covered by current income. "Families took out loans with the previous mindset, where debts were diluted, and the change in context and the decrease in inflation is what I believe generated this situation," he stated.

Negotiating Before Stopping Payments

When debts already exist and the installments begin to become difficult to manage, the alternative should not simply be to stop paying and wait for the problem to disappear. "I will have to take responsibility for paying, because the idea of uninstalling apps or going to court is not advisable, as future problems will be different and will not disappear. Therefore, we must talk to the entity to which we owe money, seeking to extend the payment deadlines and also looking to lower the interest rate they charge us," explained the licensed professional.

Negotiation can allow for extending deadlines, reducing the rate, or consolidating different obligations into a single debt with a lower cost. The goal is not necessarily to eliminate debt immediately, but to ensure that the conditions are compatible with the ability to pay.

At this point, the financial rule is simple: if a debt can be replaced by a cheaper one, the total cost can be reduced; if all new debts are only used to cover current expenses, the structural problem remains.

Criteria's recommendation points in the same direction: compare different alternatives, always look at the total cost of financing, avoid impulsively accepting a loan that does not respond to a real urgency, and organize all existing obligations in one place, with balance, rate, installment, and due date.

A Debt Can Also Be Renegotiated

Lentini also raises a reflection that goes beyond the numbers. "Just as Argentina defaulted and renegotiated its debts, you can also do something similar to move forward with a little effort," he stated.

The message aims to shift the focus from an exclusively financial perspective on delinquency. A situation of indebtedness can be serious, but it is not necessarily irreversible. Organizing accounts, knowing the cost of each debt, prioritizing the most expensive obligations, and negotiating with creditors are concrete steps to regain financial capacity.

Credit, ultimately, should not be understood as something necessarily negative. In a scenario where borrowing money is just a few clicks away, one of the most important financial decisions can also be the simplest: knowing when not to take on new credit.