Some debt situations could be avoided if. before its deadline, alternatives were sought to alleviate this debt or even to avoid higher interest rates. One of the ways to improve this situation is precisely debt exchange.
Debt exchange works by renegotiating or porting an existing debt. This transition happens between credit operators and banks or financial institutions, always based on the reduction of the total amount due.
Therefore, debt swapping is a way of renegotiating, reevaluating or repaying certain debts and debts due to their high interest rates and unviable values. In this case, the way in which this debt is negotiated or exchanged may represent a
greater benefit to the debtor.
Is it possible to trade expensive debt for cheap?
At first, all debt has its downside because it has a decrease in monetary value. With this in mind, one must take into account that some eventualities may occur and consequently the non repayment of debts, which make them more expensive.
Therefore, to exchange expensive debt for cheap one often has to perform a debt portability process. Also known as credit portability, which consists of:
- Already have a debt or debt, be it financing, loan and the like;
- Considering the current model of interest on the abusive or unfeasible service;
- Seek other credit institutions or operators that offer better conditions;
- Achieve acceptance into a new credit institution;
- Make a portability: A request to transfer debt from one new financial institution to another.
Portability is a right of every citizen. By law, the home bank (bank to which the individual is affiliated) is required to provide the documentation required to perform portability.
Therefore, by performing credit portability, it is possible to exchange debt in search of fair values and within the borrower’s budget.
The most important moment in this debt replacement process is to stick to the total effective cost (CTE) of the operation. That is, the total amount to be paid, added here:
- The amount of principal due;
- The interest charged;
- Financial institution fees and charges for services and administration.
With the value of CTE in mind, it is prudent to look for the one that has the best form of payment and the lowest total effective cost.
Thus ensuring a better long term deal and an exponentially lower debt.
The Brazilian Credit Market and the Advantages of Debt Exchange
Debt is a problem that exists only in the Brazilian reality. However, Brazil is one of the most active credit markets in the world, where most Brazilians tend to make installments or even make financing when making a purchase. This kind of attitude in line with a lack of education will tend to a poor financial organization, which in contact with debt generates situations of debt distress.
Avoiding debt and getting rid of debt are all important steps in financial education.
To avoid debt or to get out of atmospheric debt, it is plausible to use credit portability or debt renegotiation. That is why the advantages of debt exchange are:
- Reduced Total Effective Cost: Representations that the final amount paid by the consumer will be lower than the contracted to date;
- Lower or reduced interest: compared to interest on current debt, thus being a way to avoid high interest rates;
- Examples from certain fees: be they administrative, maintenance and other charges.
Finally, debt exchange is only valid in a situation that is certain of the renegotiated debt settlement. This exchange should be sought if the current debt has interest that is incompatible with its reality. More content?