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It doesn’t matter which walk of life you are from, be it property investor, general manager or domestic worker, South Africans are drowning in debt, owing a staggering R1 140 000 000 000 (R1,14-trillion).

And every month between 7 500 and 9 000 people are applying for a debt review as they struggle to make ends meet. Others create more of a debt trap by turning to more expensive short-term money lenders, experts have warned.

This is despite the positive impact of the National Credit Act (NCA) that has resulted in banks tightening lending criteria, as the impact of the recession and a history of debt has squeezed budgets to the limit.

And even Reserve Bank Governor Gill Marcus’ 50 basis point drop of interest rate to 9,5 percent last month will not be enough to release consumers from the debt trap, according to debt counsellors.

The recession has increased the consumer debt burden as thousands of retrenched workers battling to pay instalments on their houses, cars, credit and store cards cannot borrow more to pay off their loans.

But consumers have also fuelled the crisis by insisting on lavish living standards that are unaffordable, debt counsellors say.

According to the National Credit Regulator’s latest Consumer Credit Market Report released recently, consumers owe R1.14 trillion as at March 2010, and most of this, R1,02-trillion (89,50 percent) is owed to the banks; retailers are owed R38,37-billion (3,35 percent); non-bank vehicle financiers’ share is R36,69 -million (3,21 percent) and other credit providers are owed R45,11-billion (3,94 percent).

Tony Richards, chairman of the Debt Counsellors Association of South Africa, said 190 000 consumers had applied for debt review since implementation of the NCA in June 2007.

“There are still very high levels of over-indebtedness in South Africa and a large portion comes from debt prior to June 2007. But there are a lot more people entering the arena where they have lost jobs, gone on short time and don’t get paid overtime anymore, or their wives have lost their jobs, and it’s very difficult to find jobs in this current economic environment,” Richards said.

Profiles

Credit Ombudsman, Manie Van Schalkwyk, said there were 18 million who owe money, of which 47 percent had black marks on their credit profiles or were three months in arrears in their payments and would struggle to obtain credit.

Richards said that consumers were being told to sell their luxury items and cut back on lavish grocery shopping and DSTV.

He said some consumers had burned their fingers during the property boom and had bought a dozen or more properties thinking they could rent them out before selling them for a 30 percent profit.

“The property market dropped and they are now sitting with high bonds and low rental income and can’t make the payments and now they are stuck with these properties because they can’t sell them. We are seeing people from general managers in banks to domestic workers,” Richards said.

Octogen debt counsellor Paul Slot said the average consumer approaching debt counsellors had between 12 and 15 credit agreements.

He said 90 percent of consumers mistakenly viewed applying for a new loan as “the first line” out of trouble when they could not pay off old debts. He said the Consumer Credit Act had had a positive effect in preventing people from borrowing too much, but consumers were now seeking credit elsewhere.

“People are moving to short-term debt, which is micro loans which is more expensive and the repayments are also higher. The worst are the pay-day loans where people borrow R1 000 and pay back R1 500 so the interest rates could be as high as five percent a month. The move to short-term debt is unhealthy,” Slot said.

According to the NCR report the value of new mortgages, vehicle finance and unsecured credit decreased compared to the previous quarter, but short-term credit increased by 15,31 percent from R1,1-billion to R1,27-billion. The number of credit applications rejected rose to 44.13 percent in March compared to 43,93 percent the year before.

Slot said the country’s savings level of less than 1 percent meant consumers did not have slush funds to cope with crises such as a car breaking down or a funeral and then applied for credit.From Page 1

“The average consumer uses 47 percent of their after-tax income to pay off debt and that is too much because if you are in that position, it means you do not have money to pay your normal household expenses,” Slot said.

Trevor Browse, managing executive for Nedbank Motor Finance, said about 30 000 customers were in arrears (about 6 percent), while 24 000 were more than 90 days in arrears and currently undergoing either a legal or debt counselling process.

“We repossess about 900 vehicles a month (11 000 cars a year). The average capital value of repossessions is in the region of R90 000 a car (R81 million a month),” Browse said.

However, he added that repossessions had slowed compared with 2008/9 because customers were trying to pay back their debts.

“We have also been more accommodating in trying to keep clients in their vehicles and only repossess as a last resort,” Browse said.

According to Absa’s 2009 annual report, the latest available, the value of mortgage bonds where customers were more than four months in arrears was R1,34-billion, while instalment credit agreements to the value of R45-million and cheque accounts were in arrears to the tune of R44-million.

Standard Bank’s total loan book of performing and non-performing loans is R825-billion.

Spokesman Eric Larsen said the bank’s non-performing loans, which were 30 days or more in arrears, amounted to R27-billion for mortgages and R3,1-billion for vehicle asset finance, while the bank had 1 200 properties in possession as at June 30.

He said the bank’s interim results showed that there was a drop in the number of people defaulting or in arrears on their loans. - Daily News