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Revolving credit charges, while often overlooked by many consumers, play a significant role in personal finances. These fees are charged at various points in time and represent a significant cost.

In this article, we'll detail what revolving charges are, how they occur, and the most common contexts in which they arise, providing tips to help you avoid them.

Stay tuned to the end to learn more about revolving credit charges.

What are revolving charges?

Understanding the concept of revolving charges is more than just a convenience; it's essential in personal financial management.

Broadly speaking, these charges aren't just a minor detail, but rather costs associated with ongoing credit usage. Revolving charges occur especially when the minimum payment on a bill isn't paid in full.

When a consumer makes the seemingly simple choice to pay only a fraction of the total amount due, charges arise.

The difference between the minimum payment and the full amount due is automatically transferred to the so-called “revolving” account.

This option, initially seen as a short-term solution to alleviate immediate financial pressures, if not used carefully can become a potential financial trap.

What may seem like a temporary solution, choosing to pay only the minimum, can result in additional charges that grow exponentially.

The interest accrued on the remaining amount and the associated fees can turn a seemingly manageable debt into a considerable financial burden in the long run.

So, in simple terms, these charges refer to the costs associated with using credit on an ongoing basis, especially when the minimum payment on an invoice is not paid in full.

How do revolving charges occur?

Revolving credit charges are triggered when the minimum payment on a credit card bill isn't paid by the due date. In this scenario, the unpaid amount is automatically carried over to the next month, accruing interest and additional charges. These charges are often substantially higher than the typical interest rates associated with a credit card.

Furthermore, it is important to highlight that frequent use of the revolving credit can have negative impacts on the consumer's credit score, making them more susceptible to higher interest rates on future financial transactions.

You will encounter revolving charges in several situations, the most common being the following:

• Credit Card Statement: One of the most common reasons for recurring charges to occur is failure to pay a credit card bill in full. Many consumers, for various reasons, choose to pay only the minimum amount, thus triggering recurring charges.
• Financing: In addition to credit card bills, revolving charges can also arise in financing situations. When agreed-upon installments aren't paid as scheduled, revolving charges kick in, adding additional costs to the total debt.
• Personal Loans: Personal loans are another area where revolving charges can arise. Failure to comply with loan terms can result in accrual of charges, significantly increasing the amount owed.

How much do revolving charges cost? What is the rate?

Interest rates associated with revolving credit are emerging as a significant concern in the Brazilian financial landscape, ranking among the highest in the world!

According to data recently released by the Central Bank, at the beginning of 2022, the average revolving credit rate reached an astonishing 346.3% per year.

This data, besides being impressive, illustrates the potential financial trap that consumers can face when resorting to this type of credit.

To fully understand the impact of these interest rates, consider the following scenario: a consumer owes R$2,000.00 to the bank. In one year (12 months), the outstanding balance will have climbed to an alarming R$6,926.00.

This giant leap highlights the importance of understanding and avoiding revolving credit charges whenever possible.

Update of the revolving charges rule (2017)

In an effort to contain the population's growing debt in 2017, the government implemented several measures, including the regulation of revolving charges established by the National Monetary Council (CMN).

According to the guidelines established by this legislation, when making a partial payment of their bill, the consumer is faced with three different options for paying the remaining amount.

The first form is Revolving Credit, and the revolving credit modality is only valid in the first month following partial payment of the invoice.

During this period, the consumer has the option of using revolving credit to pay off the remaining amount due. However, this option is limited to a single month, so it's crucial that the customer is aware of this deadline to avoid additional charges.

Alternatively, the consumer has the freedom to choose to voluntarily pay their bill in installments instead of resorting to revolving credit.

The installment plan is usually presented on the invoice itself, and to sign up, simply pay the exact amount stipulated. This option offers greater predictability to the consumer, allowing for more efficient financial planning.

Finally, if the consumer chooses to make a payment that differs from the minimum amount or the installment proposal presented, he or she will automatically be included in the compulsory installment plan.

In this modality, the bank or financial institution will interpret the payment as a down payment for an installment plan, establishing the remaining installments in accordance with its internal policies.

In cases of payments below the minimum invoice amount, the situation becomes more serious. The consumer is considered in default and, consequently, must pay the outstanding balance on the subsequent invoice.

This approach, while rigorous, aims to encourage full compliance with financial obligations and discourage practices that could lead to a vicious cycle of debt.

10 tips to avoid revolving charges

Given the challenges posed by revolving credit charges, it is imperative to take a proactive and conscious approach to avoid financial pitfalls.

With that in mind, we present 10 essential tips that can guide consumers in avoiding revolving credit charges, promoting healthier financial management:

1. Full Payment: Always prioritize paying your credit card bill in full, avoiding revolving credit and interest charges.
2. Financial Planning: Create a realistic monthly budget, aligning your expenses with your financial capacity.
3. Emergency Reserve: Maintain a financial reserve for unforeseen events, reducing reliance on revolving credit in times of need.
4. Fee Assessment: Be aware of the interest rates associated with revolving credit and look for more favorable alternatives, such as more affordable personal loans.
5. Negotiation with Institutions: In case of financial difficulties, try to negotiate with the financial institution before resorting to revolving credit.
6. Conscious Limits: Avoid using your entire credit card limit, reserving a safety margin for unforeseen events.
7. Regular Monitoring: Monitor your finances regularly, reviewing bills and expenses, and identifying potential signs of financial trouble.
8. Financial Education: Invest in your financial education to better understand the nuances of the banking system and make informed decisions.
9. Credit Alternatives: Consider more advantageous credit options, such as pre-approved lines of credit or loans with more affordable rates.
10. Constant Reevaluation: Be open to adjusting your financial practices as needed, adapting to changing circumstances and market conditions.

By implementing these strategies, you can not only avoid the burdens of revolving credit but also build a solid foundation for lasting financial health.

Awareness, financial education, and discipline are key to facing the challenges posed by revolving credit charges and achieving long-term financial stability.

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