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Debt addiction set to worsen: 4 red flags to look out for in your household

Millions of South Africans are struggling to fight the ongoing battle of debt addiction – a problem that has worsened over the last decade. File Image: IOL

Millions of South Africans are struggling to fight the ongoing battle of debt addiction – a problem that has worsened over the last decade. File Image: IOL

Published Jul 30, 2022

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Millions of South Africans are struggling to fight the ongoing battle of debt addiction – a problem that has worsened over the last decade. And given the current economic turbulence and its knock-on effects on the consumer – rising petrol prices and inflationary pressures – over-indebtedness will increasingly pose a significant threat to the financial well-being of South Africans.

This is according to Sebastien Alexanderson, Founder and Debt Counsellor at National Debt Advisors, who says that “it is time for South Africans to start seeking relief options for their mounting debt”.

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He points to statistics released by Veri Cred Credit Bureau (VCCB) show that debt still outstanding at the end of Q2, 2021 reached R2.077 trillion, and 717 495 people were under debt review. This reality needs to be seen within the context of the fact that the average South African is spending up to 75% of their disposable income on debt repayments – a 5% increase from the long-term average of 70% as reported by the South African Reserve Bank.

The Household Debt to Income ratio in SA currently stands at 67% and it is expected to reach 75.00 percent by the end of 2022, as per the Trading Economics global macro models and analysts’ expectations.

Generally, a good debt-to-income ratio is anything less than or equal to 36%. Any ratio above 43% is considered too high and a sign of indebtedness.

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According to Alexanderson, although more consumers are becoming aware of the benefits of debt review, we need to go beyond these kinds of immediate relief options. “South Africans need to be encouraged to find ways to live within their means – the inability to do so is at the heart of the problem,” he explains.

Alexanderson suggests that the following signs could be indicative of addiction to debt within households:

Spending more than 30% (or 50%) of their gross monthly income on total borrowing repayments (secured and unsecured)

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Being in arrears for more than two months on a credit commitment or household bill

Possessing four or more credit commitments

When spending on total borrowing repayments takes consumers below the poverty line

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“What starts out as a small credit card payment, car finance, or store card can eventually lead to a debt-ridden warzone – often leaving you with little to no cash left for household expenses,” he says.

Alexanderson shares these important tips on how to break the debt trap:

  • Avoid using credit: One of the first signs that indicate that your debt situation is spiraling out of control is when you start feeling like you must rely on taking up more debt on a monthly basis, just to make it through the month. When this happens, it’s time to reevaluate your living expenses and look at ways to live more frugally by not taking on any new debt.
  • Buy what you can afford, not what you can borrow: This phrase may sound simple but, as the unwritten rules of the debt trap would have it, it really isn’t. One of the devious ways that creditors might lure you into overwhelming debt is by offering you very attractive credit products that fall right at the edge of your affordability scale.
  • Start getting into the habit of saving: The importance of building an emergency fund for unplanned expenses cannot be emphasised enough. Not having a savings plan for emergencies often requires people to take out loans when the rainy days do come.

“Part of the torment of overwhelming debt is that most of us often attribute it to personal failure when it is far from that. For most consumers who find themselves over-indebted, it is a financial reality that worsens over time and becomes evident when the problem seems insurmountable.

“Consumers need to become more aware that getting into debt is a vicious cycle but spending more wisely and seeking professional help, when necessary, can prevent that cycle from spiralling out of control,’’ Alexanderson concludes.

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