However, the share of households with overdue debts - known as delinquency - fell to 29.8 percent in July. In the previous month, it stood at 29.9 percent, while a year earlier it was 30 percent.

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The data come from the Consumer Indebtedness and Delinquency Survey (PEIC), released on Thursday (Aug. 6) by the National Confederation of Trade in Goods, Services, and Tourism (CNC).

The survey covers 18,000 households nationwide. It takes into account credit card debt, overdrafts, store credit, payroll loans (with installments deducted directly from wages), personal loans, postdated checks, and car and mortgage payments.

Household budgets under strain

The survey shows that, on average, 29.5 percent of households’ budgets are committed to debt payments. The average debt repayment period stood at 7.2 months, compared with 7.1 months a year earlier.

The CNC emphasizes that debt is not necessarily a negative financial behavior, since it allows households to channel resources toward consumption, thereby stimulating the economy as a whole.

However, the institution warns that debt levels become a cause for concern when households begin to face difficulties in meeting their payment obligations.

The survey reveals that credit cards are the main source of household debt, accounting for more than 85 percent of indebted households.

Income brackets

CNC figures show that debt is more prevalent among lower-income households: 84.9 percent of those earning up to three minimum wages report outstanding debt.

In contrast, among households with incomes above ten minimum wages, the share drops to 72 percent.

Regarding the delinquency rate, it stands at 38.5 percent among the poorest households and 15.1 percent among the wealthiest.

Selic rate cut

The debt survey was released the day after Copom, the Central Bank of Brazil’s Monetary Policy Committee, announced a cut in the Selic rate - the economy’s benchmark interest rate - from 14.25 percent to 14 percent per year.

Interest rates are being kept at a high level as a means of combating inflation, since higher interest rates make credit more expensive and, consequently, discourage consumption.

For CNC Chief Economist Fabio Bentes, the reduction in the Selic rate is an important step toward improving credit conditions, although its impact will take time to materialize.

“The decision to lower the benchmark interest rate is likely to help reduce the cost of new credit operations and facilitate debt renegotiations under more favorable terms,” he noted.

Bentes pointed out that the “high burden on household income” suggests that the recovery of households’ consumption capacity will be gradual.