The path to reducing the debt rate in Portugal

By Carlos Alvarez, director and head of operations at Bravo in Portugal

The issue of debt continues to be one of the main concerns in the Portuguese economic context. Although public debt is often discussed, household debt deserves closer attention, especially in a scenario of rising interest rates, rising living costs and persistently low wages. Reducing the Portuguese household debt rate is an objective that requires a multifaceted approach, involving public policies, financial regulation, strengthening financial literacy and structural transformation of the economy.

Statistically speaking, Portuguese household debt has fluctuated over the years, but remains high compared to the European average in several segments. Housing is the main factor of exposure, accounting for a significant part of the credit granted to families. With the increase in interest rates, many of these payments have become more difficult to bear, putting pressure on household budgets. In addition, the use of consumer credit has also increased, indicating difficulties in balancing income and expenditure.

It is time to stop treating household debt as an invisible problem. Several structural factors help to explain this situation. The first is the stagnation of real incomes. Despite occasional economic growth and falling unemployment in recent years, many workers continue to earn wages that do not keep up with the rising cost of living, especially in metropolitan areas. Housing, transport, food and energy have taken up an ever-increasing share of household budgets, leading many families to resort to credit as a way to maintain consumption patterns or to deal with unforeseen events.

Another relevant factor is the level of financial literacy. A large part of the population does not fully understand the financial products they use, including the implications of compound interest, grace periods, or variable rates. This fragility can lead to less informed decisions, with lasting consequences on the financial balance of households. Investing in financial education, from school through to adulthood, can be one of the most effective strategies for preventing over-indebtedness.

Financial sector regulation also plays a crucial role. Since the 2008 global financial crisis, banks have been operating under stricter rules when granting credit. However, challenges remain, particularly in consumer credit and aggressive marketing practices. Strengthening mechanisms for assessing customers’ creditworthiness, ensuring transparency in contract terms and conditions and monitoring commercial practices are key to ensuring that credit is granted responsibly.

In terms of public policies, the State can act on several fronts. The first is to promote job stability and increase average wages. Valuing work and reducing precariousness are measures that have a direct impact on families’ ability to plan for the future and avoid systematic recourse to credit. Secondly, affordable housing policies, particularly for young people and families with average incomes, can help to alleviate the burden of housing credit. Finally, strengthening essential public services — health, education, transport — can reduce the need for high private spending in key areas.

Reducing the debt rate of Portuguese households does not depend on a single solution, but on a coherent set of measures coordinated between the different sectors of society. Strengthening financial literacy, improving incomes, ensuring access to essential goods at prices compatible with the national standard of living and promoting a responsible credit policy are central elements of any effective strategy. The aim is not only to reduce financial indicators, but to improve the economic resilience of households and promote greater stability and social justice.