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South Africans struggle to fight debt addiction

The average South African is spending up to 75 percent of their disposable income on debt repayment. Photo by Simphiwe Mbokazi.

The average South African is spending up to 75 percent of their disposable income on debt repayment. Photo by Simphiwe Mbokazi.

Published Jul 31, 2022

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MILLIONS of South Africans were struggling to fight the ongoing battle of debt addiction, which was a problem that has worsened over the last decade, according to debt counselling firm National Debt Advisors (NDA).

Sebastien Alexanderson, the founder and Debt Counsellor at NDA, said that given the current economic turbulence and its knock-on effects on the consumer, the rising petrol prices and inflationary pressures – over-indebtedness would increasingly pose a significant threat to the financial well-being of South Africans.

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“It is time for South Africans to start seeking relief options for their mounting debt,” Alexanderson said.

He pointed to statistics released by VeriCred Credit Bureau (VCCB) showing that debt still outstanding at the end of quarter two, last year reached R2.077 trillion and 717 495 people were under debt review.

This reality needed to be seen within the context of the fact that the average South African was spending up to 75 percent of their disposable income on debt repayments – a 5 percent increase from the long-term average of 70 percent as reported by the South African Reserve Bank

The Household Debt to Income ratio in South Africa currently stood at 67 percent and it was expected to reach 75 percent by the end this year, as per the Trading Economics global macro models and analysts’ expectations.

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

Alexanderson said although more consumers were becoming aware of the benefits of debt review, South Africans needed to go beyond these kinds of immediate relief options.

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“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.”

Alexanderson suggested signs indicative of addiction to debt within households included spending more than 30 percent (or 50 percent) of their gross monthly income on total borrowing repayments (secured and unsecured), being in arrears for more than two months on a credit commitment or household bill, possessing four or more credit commitments and spending on total borrowing repayments takes consumers below the poverty line.

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

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Alexanderson said to break the debt trap, consumers must avoid using credit as one of the first signs that indicate that one’s debt situation was spiralling out of control was when they felt like they must rely on taking up more debt on a monthly basis, just to make it through the month.

He said when this happens, it was time to re-evaluate one’s living expenses and looking at ways to live more frugally by not taking on any new debt.

The debt counsellor said that people should buy what they can afford, not what they 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.

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He also advised consumers to start getting into the habit of saving since the importance of building an emergency fund for unplanned expenses could not be emphasised enough. He said not having a savings plan for emergencies often required people to take out loans when the rainy days came.

“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,” he said.

Alexanderson said consumers needed to become more aware that getting into debt was a vicious cycle, but spending more wisely and seeking professional help, when necessary, can prevent that cycle from spiralling out of control.

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