The affordable education loan option
Durban - When Jack Naidoo upgraded his vehicle two years ago and then took out a loan to renovate his Chatsworth home, his budget calculations at the time revealed that he would have money to spare and a little to save.
However, within months the municipal rates for his property increased, followed by hikes to electricity and water. These increases quickly cut into that “safety cushion” he believed he had.
“Then we had all those petrol increases, and before I knew it I was applying for a credit card and store card to help fill the gap. But after a few months, the 21 percent interest rates they whacked me with put me further and further in debt – to the point now that it will take at least six years to get out of,” he said.
Naidoo is among the millions of South African consumers facing the strain of rising food and fuel costs who are turning to credit to survive.
Figures from the National Credit Regulator (NCR) Credit Bureau Monitor show that more than 9.5 million consumers had impaired records as they had fallen behind on credit repayments.
Credit Bureau Monitor figures are often used to gauge the level of individual debt in South Africa.
“Impaired records” refers to a consumer or account that is three or more payments or months in arrears, or has been handed over or written off, or against which a judgment or administration order has been granted.
The NCR Credit Bureau Monitor for the first quarter of this year shows that consumers with impaired records increased by 189 000 people, while the number of credit accounts reached 70.73 million.
In turn, the easy lure of credit is driving many consumers to the brink of financial ruin.
Magauta Mphahlele, chief executive of the National Debt Mediation Association, said most consumers who approached them had debt exceeding their income by more than 30 percent.
She said many people were granted debt beyond what they could repay, while others incurred excess debt by not fully disclosing their financial positions.
Other factors were consumers taking the maximum amount offered when the plan was to taken up a lesser amount.
“These additional funds are then consumed by general day-to-day expenses. Some consumers do live beyond their means due to peer pressure, social acceptance and family expectations,” she said.
Mphahlele said consumers should learn to live within their means by budgeting and knowing how much they spend every month.
“Consumers should ensure that debt is used for needs and not ‘wants’, and when they do take credit they must understand the interest and fees payable for the full duration of the period for the credit you take.
“When deciding whether you can afford to take on new credit, factor in interest rate hikes, maintenance costs - homes and vehicles - and cost-of-living increases,” she said.
Manie van Schalkwyk, the Credit Ombudsman, said many consumers had been placed under further strain by credit providers who deducted repayments from consumers through garnishee orders, which had been abused to an extent where people were charged more than they owed and, in some instances, were left with only 20 percent of their salaries.
“One of the abuses we found was that consumers were forced into signing consent to judgments,” Van Schalkwyk said. “This is illegal and nobody should ever have to sign this, as the credit providers go to court with this contract which allows them to obtain attachment orders.”
Van Schalkwyk said if consumers got into debt, they should approach their credit provider and make arrangements to pay off their loans.
“If you get into trouble, don’t be like an ostrich and hide. Rather confront the problem and find a way to settle the debt,” he said.
Bernadene de Clercq, head of Unisa’s personal finance research unit, said that while many people were awash with debt, the situation was not as dire as it was made out to be.
“We need to understand the numbers. A lot of consumers in fact don’t have any debt at all.
“If you take the figure of the NCR, which says that 47 percent of consumers have impaired records, it is important to understand that if you have 10 accounts and if you are in arrears for only one of those accounts, yet are up to date with the rest, you will be classified as being in arrears.
“There is also an issue of how debt is measured. It is important that we have a more critical look at the numbers that are being reported and have a better picture.
“Not all consumers are stressed. There are some who are struggling, but we don’t think that is as acute as it is made out to be,” she said.