Consumers are warned not to get caught in the debt spiral as rising inflation and interest rates add to their financial pressure. It is now more important than ever for consumers to reduce the cost of credit and protect their assets.
The past six years have shown that a material decline in disposable income and an increased debt burden are contributing to the financial challenges many South African consumers face, as indicated by the increased demand for debt advice, with demands increasing in the first quarter of 2022. 32% compared to the first quarter of 2021.
According to DebtBusters’ latest Debt Index, a quarterly debt report compiled from data provided by clients seeking debt advice, nominal income has fallen slightly but, when considering the effect of cumulative inflation over the past six years , South Africans have 31% less disposable income.
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This is where the debt spiral begins
How do they fill the void? They borrow again to make up for the lack of real income. This is evident in the unsecured debt levels which are 20% higher than in 2016. For those who take home more than Rand 20,000 per month, unsecured debt has increased by 54%, which is unsustainable.
This high level of debt has consequences as consumers have to spend around 62% of their take-home pay to honor their debt. Even more alarming is that debt-to-income ratios are at the highest levels in the last six years for the first two income brackets.
The ratio for those who bring home more than R10,000 per month is 125% and 150% for those with a take-home income of R20,000 or more per month.
“Although the average loan size has increased by 27% over the six years, the number of debt obligations has decreased by 18%, indicating that while consumers have more debt per credit agreement, they seek help sooner.”
Sager says it’s especially important in an environment where interest rates and inflation are on the rise.
“In these circumstances, consumers must do everything possible to reduce the cost of credit and protect their assets. For those who are unable to do so without help, debt counseling is the best option available. “
Debt counseling can help significantly reduce interest rates on unsecured debt and enable consumers to pay off expensive debt faster. Last year, this enabled DebtBusters’ clients to return Rand 2 billion to creditors.
“The number of consumers who successfully complete debt counseling today is nine times higher than in 2016. In fact, consumers who finished debt counseling in the first quarter of 2022 repaid R400 million while under debt counseling. “.
Sager says there has been a notable increase in men applying for debt counseling, and during the first quarter, 57% of new applicants were men, up from 48% in the same period in 2016.
Consumers drowning in debt
Neil Roets, CEO of Debt Rescue, also says the fuel price suspension was too short and too late to save consumers from drowning in debt after months of debilitating gasoline price hikes, which culminated in record hikes in March and April in the wake of the surge in global oil prices.
The latest gasoline price announcement left the hopes of motorists hoping for a substantial drop after months of hikes.
“While the news of any small reduction in the price of gasoline is welcome, it is simply too little and too late to have any effect on the pain consumers continue to endure when buying fuel at the pumps.”
He says gasoline and diesel prices have risen by more than a third in the past year and we need a long-term solution. Roets believes the government’s efforts to bail out consumers will not save the vast majority of consumers who have been hit by substantial gasoline price hikes for over a year and who now live on credit to survive each month.
The hike in fuel prices is just one of a flurry of cost-of-living increases that South Africans have been pummeling in recent months and now a substantial portion of households can no longer afford even basic goods and services.
Terrible situation of insufficient money for electricity and bases
“Our most recent consumer survey shows that 72% of people can no longer meet their domestic electricity needs, while an astronomical 88% have had to drastically cut basic goods and services to manage the rising cost of electricity. life”.
A recent study by Genesis Analytics, in collaboration with the Financial Sector Conduct Authority (FSCA), also concluded that over-indebtedness remains a challenge in South Africa. More than 50% of South African credit consumers can be considered to be in too much debt, which has led to bad credit records for 48% of all borrowers.
Experts from the National Debt Advisors (NDA) say it’s hard to believe that nearly half of the 27 million adults who use credit find it difficult to keep up with debt repayments. The NDA found that the number of South Africans undergoing a debt review over the past two years has increased by nearly 8% from 2020 to 2022.
Over-indebtedness is linked to national economic conditions and is exacerbated by the Covid-19 pandemic. Add to this slow economic growth and high unemployment, coupled with rising prices for food, gasoline and other basic necessities, and the significant impact on South Africans’ credit needs and ability to repay becomes clear. the debt.
Sebastien Alexanderson, founder and debt consultant of NDA, says money problems aren’t just about consumers’ pockets, but their emotional, physical and mental well-being as well.
“The trick to staying debt free is to start with the most basic financial step – just work out a budget and stick to it as much as possible,” says Alexanderson.