What is default and how is it different from debt?

What is default is a very frequent question among consumers.

This is because some say that the term is synonymous with debt, while others believe there is a difference.

After all, who is right? Are there any differences between the terms? Which ones? 

If these questions made you access this material, then we can answer them today.

That said, if you want to understand everything about debts, just continue reading! 

What is default?

Understanding what default is is very important to understand if there is a difference between it and debt.

So, before we talk about anything else, let's get to that explanation.

When we talk about default, we are referring to the situation of acting in a way that is not in accordance with what is considered regular.

Therefore, if a deadline is not met or the full amount is not paid, the individual is considered in default.

Default is considered a momentary situation, as it involves short periods of delay.

Furthermore, when we talk about default we are not just referring to financial issues.

Failure to deliver a document on time, or even delaying work, can already be considered non-compliance.

But, in general, this term is not used in these situations, being common in the financial sector.

In any case, what we need to know is that default is a situation considered temporary, and with the possibility of regularization in the short term.

This means that when a consumer is considered in default, he or she is simply in arrears, but there is still room for regularization without the use of more serious measures.

Therefore, the customer would simply have to pay to resolve the situation, without having to renegotiate or even deal with a negative credit rating.

What is the difference between default and debt?

Throughout the previous topic we explained what default is.

This information will help us understand the difference between the term and the concept of debt.

But, to understand the difference, it is important to explain what debt is.

When we talk about debt, we are referring to a situation in which a debt takes on larger proportions.

This means that the debt in question has already been in effect for a long time, which resulted in the need to blacklist the holder's name.

Therefore, we can consider that debt is a more serious situation, in which measures are applied to seek regularization of the debt.

Now that we understand this, we can finally talk about the difference between the two terms: default and debt.

And, throughout the explanations, it becomes simple to understand that one precedes the other.

In other words, default is the situation that occurs before the debt is created.

Therefore, the consumer is considered in default with a simple delay, which if not resolved in time, will become a debt.

The difference between the two is that in the event of default, no action is taken, and the consumer is able to pay the debt without any major difficulties.

In the case of debt, there are measures applied, which we will see below.

Debt losses

At this point you already have a good understanding of what default is, and you know that this is the name given to a simple delay in paying a debt.

But we also saw that when this default is not resolved, it becomes a debt.

And, from the moment the debt becomes debt, the losses to the holder are greater.

The reason the losses exist is because the debt is considered a negotiation difficult.

In this way, the creditor applies more serious measures, seeking to convince the customer to pay the debt.

After all, no one wants to suffer serious damage to their name, so this may convince or facilitate payment.

In the following topics, we will see what measures are usually taken in the event of debt.

Name negation 

Negative listing is the first and main measure to be taken in case of debt.

In this situation, the debtor's name is included in credit protection agencies.

When this occurs, the CPF is restricted, since the debt is listed there, and the credit score is affected.

This interferes with the debtor's financial life, who has difficulty obtaining credit and still has to deal with collections.

So, knowing what default is helps you avoid debt and these losses! 

Fees 

There are those who think that interest is not so problematic, because they believe that it only increases the value of the debt.

However, we must consider that increasing the amount of debt can generate significant financial losses.

Furthermore, in some cases, interest rates can prevent you from paying off your debt, as they increase progressively.

Therefore, when the person saves the money to pay, they discover that the debt is already much higher due to interest.

In some cases, the debt may even become unpayable given the debtor's financial situation.

Therefore, it is important to know what default is to avoid interest! 

Credit Loss – What is Default?

When you owe a company, you lose credit almost immediately.

This is because companies often deny credit to debtors, especially when the debt is direct.

But, it is important to say that by owing money to one company, you can also lose credit with others.

This is because, credit granting is done through credit analysis.

When you take on debt, it affects your credit profile, which ends up changing your rating, and as a result, can reduce the credit you have available.

Therefore, know what default is and avoid getting into debt! 

Protest at the notary's office 

THE protest in the notary's office It is a method used by companies to request payment of debt and prevent it from “expiring”.

This is because the protest works as a collection record, which aims to prove the debt and notification to the debtor.

This registration is sufficient to prevent the statute of limitations on the debt, which will remain in your name until it is paid.

So, in this case, waiting for the debt to expire in 5 years will have no effect, and could even harm your situation, as interest will be added.

Knowing what default is is as important as understanding the damage caused by its evolution into debt! 

As a last resort, judicial execution 

And, our last example of what can happen in the case of debt is judicial execution.

Judicial execution is the name given to the judicial seizure of assets and values to pay a debt.

This is considered a drastic measure, used only in cases of significant debts, very old and/or debts that have not been resolved in any other way.

With the execution, assets such as real estate and cars can be seized, as well as bank accounts can be blocked.

It is worth mentioning that this measure is not used for all debts.

But it's still worth understanding what it's all about in order to avoid debts! 

Finally, now that you know what default is, it is easy to understand the importance of paying off debts as soon as possible to avoid debt losses!