Faced with the rising cost of living, beware of the consumer credit trap

The number of people registered in the national personal credit repayment incident file (FICP) jumped 18% between December 2021 and December 2022, according to the Banque de France (AFP / Christophe ARCHAMBAULT)

“One of my biggest mistakes was to resort to new credits to repay the first one”: inflation and the rise in the cost of living are likely to lead to a resurgence of situations like the one encountered by Dona, a student from 24 years old caught in the consumer credit trap.

At the end of 2020, Dona, who did not wish to give her name, took out a first loan of 1,500 euros to buy a used Peugeot 206.

Floa Bank, a former Casino Bank now part of BNP Paribas, then offered him a revolving loan of 6,000 euros.

He then “draws” into it to help his family, buy a new computer, move to Paris, continue his studies… without seeing the wall of debt that is being built in front of him, brick by brick.

“I had all these charges that were accumulating, the cost of living which increased when I left the province for Paris,” he told AFP.

At the beginning of 2022, the load becomes too heavy. His bank adviser, noting a chronic overdraft from the 2nd or 3rd of the month, encourages him to contact the association Crésus, which provides support to people in a situation of financial fragility.

– Solutions exist –

“The difficulty is that people come to see us very late”, explains to AFP Pauline Dujardin, lawyer within this association.

Financial problems are experienced as a shame. “We are often the first person people talk to about it,” she continues.

The good news is that solutions exist: request for a grace period, negotiations with creditors… and as a last resort, filing an over-indebtedness file with the Banque de France.

The latter will then calculate the repayment capacity of the debtor, according to his income and expenses, then isolate a repayment capacity that it will spread over several years.

Caught in a “spiral”, Dona now has no choice but to limit her expenses “to the most essential”.

“I allow myself no pleasure, nothing.” When his classmates go for a drink, the young man, who is on a work-study program, systematically declines, arguing “the delay in files at work when in reality, I have nothing to do”.

– Warning signs –

The sharp rise in prices in France, measured at 5.9% over one year in December by INSEE, is weighing on a growing number of households in financial difficulty.

The number of people registered in the national personal loan repayment incident file (FICP) has already jumped 18% between December 2021 and December 2022, according to data released on Tuesday by the Banque de France.

Another warning signal: the French Association of Financial Companies (ASF) indicated on Wednesday that its members were facing an “increase in postponements of reimbursement and first unpaid” on the consumer credit market.

“Our consumption habits were artificially maintained and supported by public aid during the Covid and post-Covid”, explains to AFP Thomas Duvacher, general manager of the collection company Intrum.

They are characterized “by a sustained and growing use of consumer credit in France”, rather, according to him, among households “on the budget limit and with an appetite for consumption which remains high”.

© 2023 AFP

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