Revolving Credit: what is it?

Revolving credit is a certain type of credit made available to consumers when they do not pay the full amount of their credit card bill by the due date. A more common reference and example is the payment of the minimum amount of the invoice, however, the use of revolving credit occurs whenever the consumer pays any amount less than the total amount.

The discrepancy between the full value of the invoice and the amount of payment by the due date results in a form of loan. Consequently, interest will be applied on the unpaid amount.

The big problem lies in the fact that the interest rates associated with revolving credit are among the highest on the market, with the interest rate on revolving credit reaching the historic and frightening mark of 409.3% per year at the end of 2022, reaching the highest level since the beginning of the Central Bank’s statistical series, which began in 2012.

How revolving credit works:

Each financial institution that issues credit cards establishes an interest rate, limit and other clauses that affect the use of revolving credit.

Revolving credit can only be used once every 30 days. And if the cardholder is unable to pay the full amount of the next bill, the bank is obliged to offer the customer a loan line with more onerous interest rates and conditions than those of revolving credit.

Credit Card Guidelines:

In April 2017, I consulted updated regulations for the use of revolving credit on credit cards. These changes aimed to reduce the interest rates that consumers faced in this type of credit and prevent excessive debt.

Consequently, revolving credit now has a maximum term of just 30 days. After this period, the amount must be paid in full. A viable alternative is to use another type of loan to settle the amount of the invoice.

Using a credit card without relying on revolving credit:

A credit card can be an important ally in managing everyday finances when used responsibly. However, it is essential to avoid using revolving credit, as it can harm or promote harm to your organization and financial planning. Here are some guidelines to achieve this goal:

• Set a spending limit that is lower than the total amount available from your card provider.
• Maintain regular monitoring of the invoice, checking installment purchases and the accuracy of entries.
• Be careful with excessive installments as, in the long term, they can compromise a significant part of your monthly income.
• Avoid buying on impulse, making conscious use of your card and only purchasing what you need.
• Prioritize paying the invoice in full by the due date to avoid interest accrual.
• Assess whether your card is exempt from annual fees or whether there are costs associated with it. If there are fees, consider looking for alternatives without additional costs.
• Never lend your card to third parties.

How not to get into revolving credit?

If you do not have the necessary resources to pay your card bill in full, it is advisable to explore credit alternatives that have lower interest rates than those applied to revolving credit. To do this:

• Check the current interest rate on the invoice for revolving credit.
• Compare and compare the available options and select the one that is most advantageous to pay your card bill, which you can do online.

It is important to keep in mind that revolving credit should be seen as an emergency solution and should not be used and used frequently, given the danger and fragility that revolving credit offers to your finances. Therefore, it is essential to know how to take out a line of credit that can be more beneficial than using revolving credit.

What to do to avoid revolving credit and its exorbitant interest rates?

If you do not feel comfortable and confident in choosing such a proposed alternative, do research on the market and choose the loan and financing that most favors you and promotes security for your finances.

Why is revolving credit dangerous?

The risk associated with revolving credit is located precisely in the high probability of default. As previously highlighted, revolving credit is characterized by extremely high interest rates, and when added to the installments of previous invoices, the chances of the customer not being able to comply with the payment become substantial.

Therefore, it is essential that you purchase products or services whose costs are in line with your current financial situation. This way, you will prevent your financial situation from becoming increasingly in demand and maintain your positive opinion in the field of credit.

Furthermore, a great alternative is to redeem your FGTS from the moment you want to purchase goods, or even pay off debts, as you obtain amounts easily, quickly and safely and a beneficial and positive point is that does not require loans or financing, having a considerable amount on hand.