Recognise debt before it recognises you

In 5 min you'll know: how to calculate the total cost of credit and compare the (annual percentage rate of charge — total credit cost) across at least 3 offers

Credit isn't extra money. It's money advanced that you'll pay more than it's worth. That sounds obvious, but the financial industry has built its entire communications strategy to make you forget this sentence. When you see an advert with "instalments of €49 a month", what they don't tell you is the total number of months, the cost of the built-in insurance, or the actual interest rate. In Lesson 6 you built your emergency fund so you wouldn't depend on credit when something goes wrong. Now you'll learn to recognise when credit is a tool and when it's a trap.

Before you continue: if you save €50/month, after 6 months you have €300 — but what if a €500 surprise expense hits, where do you find the rest?

(Answer in the next paragraph.)

The instalment lies. The instalment is the number they show you because it's small and reassuring. What matters is the total cost of credit. If they offer you €5,000 to pay over 60 months at €49, you're committing €2,940. But with interest, fees and insurance, the total cost can rise to €6,800 — meaning you pay back €1,800 extra for having borrowed €5,000. The tool for comparing is the , the Annual Percentage Rate of Charge. It's mandatory in all credit advertising and includes interest, fees, taxes and insurance. If they only show you the TAN (nominal interest rate), they're hiding costs.

An unarranged overdraft is the quietest way to get into debt. Letting your account go negative for a few days seems harmless, but overdraft fees are among the most expensive on the market — they can correspond to a TAEG exceeding 300%. The Banco de Portugal has warned about this scenario in multiple reports. If you use your overdraft more than twice a month, you're paying more than a standard personal loan without even having applied for one.

The warning signs are clear: you use your credit card to pay fixed expenses, you took out a loan to pay off another one, your balance is negative more often than positive, or you avoid looking at your bank statement. If you recognise any of these signs, debt has already recognised you. The first step isn't to take on more credit — it's to stop, list everything you owe, and choose the smallest debt to eliminate first. A recovery plan starts with a number: knowing exactly how much you owe and to whom.

The rule is this: before signing any credit, calculate the total cost and compare the TAEG with at least three alternatives. If the monthly instalment is more than 15% of your net income, don't sign. Anyone who enters into credit without measuring the total cost isn't buying time — they're selling their financial future.

TAEG típica crédito pessoal: 8–15% | Descoberto bancário: TAEG >300% | Diferença: 20×

Primer · TAEG — o que estás realmente a pagar

The is the Annual Percentage Rate of Charge. It's the number that shows how much you'll pay per year in interest plus every cost associated with the credit. Unlike the TAN (nominal annual rate), which only counts the interest on the borrowed money, the TAEG also adds fees, taxes and any compulsory insurance.

The rule is simple: the TAEG is almost always higher than the TAN. If the gap between the two is 1 to 3 percentage points, it's reasonable. If it's 4 or more, there are heavy embedded costs — usually credit-linked insurance products that the bank requires.

Where to find the TAEG:

In any credit advert — it's required by law.
In the FINE (Standardised Information Sheet) the bank gives you before you sign.
In the contract itself, in a highlighted box.

Worked example. João sees a car loan advertised at TAN 4.5%. When he asks for the FINE, he sees the TAEG is 5.8%. The 1.3-point gap comes from monthly processing fees (€5 × 60 months) and an embedded compulsory life insurance. Without reading the FINE, João would compare only the TAN — and could pick the most expensive credit thinking it was the cheapest.

Continua a leitura — o quiz aparece a seguir.

Compare the TAEG across 3 loan offers (2 min) →

Your promise: This week, Tuesday at 8pm, I will take my latest loan and calculate the total TAEG I'm paying.