19 million credit- active citizens appear to be in financial duress.
Inquiries about debt counselling have increased as more than 19 million credit-active South Africans appeared to be over-indebted and the official unemployment rate reached a record high of 32.6% in the first quarter of 2021.
Statistics released earlier this year by the SA Human Rights Commission revealed that more than 50% of SA’s credit-active consumers are overindebted and, coupled with widespread retrenchments and salary cuts, consumers were financially stressed in 2021.
According to the National Debt Counsellors Association (NDCA), some members have recorded increases of more than 30% as middle-class South Africans battled to make ends meet.
Association chairperson Benay Sager said the rising numbers were not unexpected given the effect of the previous lockdowns on an economy that was struggling before the pandemic.
“Real incomes had not been increasing going into the pandemic and a lot of consumers had to take pay cuts while some lost their jobs,” he noted. “A few things have happened with the economic environment over the past several years which made the situation a lot worse for the consumer.”
However, Sager also said there was a silver lining in the increase in enquiries as it pointed to financially stressed consumers becoming more aware of debt counselling as a solution.
“But consumers need to understand it is a commitment, not an instant solution,” Sager said. “For people who stick with the plan and make their monthly payments it works well, and the vast majority never fall back into unsustainable debt again.”
Sager said over the past several years essentials, such as medical aid, petrol, electricity and insurance, have been significantly higher than inflation which led to consumers failing to keep up. He added that while undergoing debt counselling consumers should not be granted more credit.
“The process is completed only once all unsecured debt is paid off. Then, a clearance certificate is issued, and the consumer can again become credit active.”
Development economist Tatenda Zingoni said household debt in SA rose in the fourth quarter of last year, and “it may impact economic growth because of their inability to contribute to the economy”.
Debt Rescue CEO, Neil Roets, said credit providers were now aggressively pursuing collections after the end of payment holidays and “it is not just the unemployed who risk falling into a debt trap”.
“A recent survey showed nearly 80% of South Africans turn to unsecured credit from microlenders or payday loans.”