Experts gave advice on how to reduce your debt load if you have five loans

The order of repayment of loans has been announced: first with the highest rate, then in descending order

Over the past two years, the share of borrowers with more than five active bank loans has increased from 4.7% to 8.6%. That is, it has almost doubled. Formally, these data are one of the components of the increase in the debt burden of the population. However, they clearly shouldn’t be horrified, since this category of debtors has grown largely due to the rapid spread of credit cards. However, there is little good here in any case.

The figures from the Scoring Bureau took into account all types of retail loans that, as this organization explained, a client may have. In general, the number of Russian borrowers with several loans has been continuously increasing since 2019, the largest increase occurred in 2022: the share of clients with three loans increased by 1.1 percentage points, to 12.6%, with four – by 1.2 percentage points. p., up to 6.7%, with five – by 2.4 p.p., up to 7.1%.

And last year the increase occurred mainly in the group of borrowers with five or more loans. The Scoring Bureau attributes this partly to the growing popularity of bank credit cards. The card is considered active if the client has used at least part of the limit provided on it. According to the Central Bank, as of July 1, 2023, there were 23 million “plastic” holders in the country, this is 54% of the total number of bank borrowers. In total, 46.7 million credit cards have been issued in Russia, Frank RG analysts calculated last fall. Under any circumstances, statistics indicating a noticeable increase in the number of individuals with five or more loans raises some alarm. We asked experts how to approach it and how people should act in this situation to reduce their debt burden.

Artem Deev, head of the analytical department at AMarkets:

“An important nuance: the statistics take into account all retail types of loans that a person may have. These are mortgages, car loans, consumer loans and credit cards. A credit card is considered activated if at least part of the limit has been used. In fact, all you have to do is buy a chocolate bar, and in the bank’s statistics you already have a valid loan. The situation is still far from critical, since the number of “bad” debts (the overall level of overdue debt) has not increased. However, there is a simple principle to avoid delays. First of all, you need to repay loans with the highest rate – and then in descending order. The order should be as follows: microloans; credit cards; consumer loans; car loans; mortgage. In addition, when repaying early, you can choose two options: reducing the principal amount of the debt or shortening the period. The second is preferable because it will save on interest.”

Alexey Zubets, professor at the Financial University under the Government of the Russian Federation:

“In this case, we are not talking about classic borrowers who borrow a certain amount. People have increasingly begun to take advantage of the opportunity to receive virtually free money from the bank – using credit cards with a long, up to 100-120 days, interest-free period. Accordingly, the increase in the share of borrowers with five or more loans does not mean that representatives of this category devote the lion’s share (up to 80%) of their income to repayment. I would call what is happening a game of “revolving” loans. I don’t see a catastrophe, but banks should (preferably, with the help of a special information base) more strictly and systematically control the number of credit cards a person operates. Otherwise, a situation will increasingly arise where the debtor does not meet the grace period and ends up with quite high interest rates. There is little good here – both for banks and for clients.”

Sergey Drozdov, financial analyst:

“If a person has accumulated five or more credits, then one of two things: either he works for pennies, or he doesn’t work anywhere at all. I suspect that young people predominate among such borrowers. Let them get a job, what else can I advise? Now in large cities there are a lot of vacancies that do not require high qualifications, but are well paid. For example, couriers receive 100 thousand rubles per month. Accordingly, everything depends on desire or unwillingness. How do those who are stuck in a debt trap and are unable to pay the bank take out loans? People take out each subsequent loan against the payment of the previous one, and, as a rule, at a less favorable interest rate. This is the actual restructuring (refinancing) of debt obligations. In many cases, the path is a dead end; all that remains is to file for bankruptcy. But bankruptcy also has its pitfalls: the procedure is not quick, and in addition, property may be used to pay off debts. It’s one thing when you have one or two active loans, and quite another thing when you have more than five.”