The state of the South African economy and news about consumer debt is all around. But many South Africans do not realise the impact the economy has on their debt, and the impact their debt has on the economy. How can we go about making the change?
What is consumer debt and what is the big deal?
Consumer debt is the debt held by individuals, not the government. This comes in the form of credit card debt, and other form of loans (home loans, car loans, study loans), and accounts held in arrears such as cell phone or clothing accounts. With the recent interest rate hikes and the weak state of the South African economy, consumers have found it difficult to manage their indebtedness and the burden is crippling households across the country.
What is the state of consumer debt in South Africa?
According to World Bank, 86% of the South African population is in debt. The latest Gauteng City-Region Observatory Quality of Life Survey report [“GCRO report”] shows that across all income groups in Gauteng, the level of indebtedness has risen. Although Gauteng is South Africa’s wealthiest province, it also has the most indebted citizens. The GCRO report shows that 40% of Gauteng residents have some form of debt, rising by 10% since 2013.
Debt Rescue, a South African debt management firm, released statistics showing that the bulk of South African consumers’ salaries (up to 75%) are owed to creditors. In addition, up to 60% of the South African population are not able to meet their monthly required payments on home loans or credit cards. This leaves 77% of South Africans completely broke at the end of the month, without any ability to save money, plan ahead or be ready for risks and emergencies. Debt Rescue also found that the average South African was R70 000 in debt, while over 11 million credit active consumers were categorised as “over-indebted” and, according to the National Credit Regulator, 10.3 million South Africans have trouble meeting their monthly repayments.
Does this add to the economic burden?
An important factor that influences the wellbeing of the economy, is the financial health of consumers. To achieve a healthy influence, the debt-to-income ratio of 78.4 of South African consumers will have to be reduced. A major challenge in achieving this is the fact that most consumers with debt trouble often do not realise the seriousness of their situation until their situation reaches breaking-point.
What you can do to help?
First of all, you can decide your level of understanding the types of debt that put pressure on the economy. Make sure you know the state of your current indebtedness by getting your credit report from any credit bureau ( transunion ). Plan ahead to pay off your debt in time and if you are having trouble in managing your debt, consider debt consolidation or consulting a debt management firm.