In Belgium and elsewhere, due to the crisis, numerous households find themselves in a situation of over-indebtedness. Over-indebtedness: what are the consequences? What differentiates indebtedness from over-indebtedness? When should one consider themselves as ‘over-indebted’? Credafin tells you everything.
Indebtedness and Over-indebtedness: What’s the Difference?
Indebtedness: Definition
A household is considered ‘indebted’ as soon as it is engaged in repaying at least one credit (loan or leasing). It is important to note that this credit may have been contracted for private or professional purposes. Almost every household can thus be qualified as ‘indebted’ (mortgage loan, personal loan, loan for works, auto loan, etc.).
Over-indebtedness: Definition
It is essential to distinguish between indebtedness and over-indebtedness… While indebtedness is a relatively common and conventional practice, over-indebtedness can be potentially dangerous…
The Belgian House of Representatives defines over-indebtedness as ‘a persistent or structural inability to meet financial obligations or repayment deadlines that are due or will become due.’
Over-indebtedness in Practice
In Belgium, more than 370,000 people (3.8% of the adult population) were recorded as ‘over-indebted’ in 2016. These individuals were subsequently listed with the National Bank of Belgium (NBB) due to defaults on payments. These defaults were related to one or more consumer credits and/or mortgage loans.
555,936 contracts were then considered defaulting for a total amount of 3.1 billion euros.
The number of people affected by over-indebtedness is constantly increasing. For comparison, it was ‘only’ 308,803 (+20%) in 2010 compared to 364,385 (+1.5%) in 2015.
The Consequences of Over-indebtedness
Over-indebtedness leads to a series of detrimental consequences. These consequences can be material, psychological, or even physical.
To mitigate over-indebtedness, it is possible to opt for debt settlement. As explained by SPF Economy, its aim is to ‘restore the debtor’s financial situation, notably by enabling them, insofar as possible, to pay their debts while guaranteeing that they and their family can lead a life consistent with human dignity.’
Credit consolidation also attempts to regulate situations of over-indebtedness in its own way. Credit consolidation aims to combine all subscribed credits (or only a part of them), with the objective of extending the repayment period, thus reducing the due monthly payments.
In any case, over-indebtedness should never be taken lightly. Leaving the situation as is, at the risk of it worsening, is never a solution. So, take the initiative!
