South Africans have been warned to brace themselves for tough times in the new year.
Debt Rescue chief executive Neil Roets has cautioned consumers to enjoy the festive season responsibly and not get in debt. He said major price increases are predicted for food and essential items due to the slow economic growth rate.
Roets said their statistical analysis of the debt situation in South Africa showed consumers would notch up record levels of debt in the new year.
“It seems sad that we have to be so pessimistic at such a happy time of the year, but the sooner consumers realise that the economy is in trouble and tighten their belts, the fewer of them will have to come to us to bail them out by placing them under debt review,” Roets said.
Many South Africans who barely make ends meet during the year have plunged themselves ever deeper into debt over the holiday season by spending money on expensive holidays and generally having a good time, often on credit cards or with money borrowed from money lenders at exorbitant interest rates, according to Roets.
He said experience over time had shown that January was the month of “the great reckoning”.
“We see more new clients seeking help with the repayment of their outstanding debt in January and February than any other month because of additional debts stacked up during the holiday season.
“Parents suddenly realise they have to pay school fees that had not been budgeted for, and with credit cards maxed out on luxuries in November and December, many have no choice other than to seek relief by going under debt review to prevent debt collectors from seizing their property,” he said.
It was hugely important to budget, especially for expenses such as school fees and payments on credit and store cards.
“Bear in mind that the interest rate on credit cards is substantial, so wherever possible, buy cash.”
Roets warned that 2018 was going to be a tough year and that consumers who had difficulty making ends meet in 2017 were going to find it much harder in the new year.
“Total consumer debt now stands at close to R1.71trillion (according to the latest figures released by the Reserve Bank), which clearly shows that South African consumers have not cut back on spending.
“A recent World Bank index has shown that South Africa is one of the most indebted countries in the world.”
Roets added that almost half of all consumers were three months or more behind in their payments. The major culprits were credit and store cards, followed closely by unsecured debt.
The only measure of relief for consumers who are in over their heads is the legally binding system of debt review, which allows deeply indebted consumers to repay their debts over a longer period in smaller instalments, often at a discount.
“Lenders are sometimes willing to take a cut if it means they can avoid having to involve debt collectors or foreclosing on the fixed properties of debtors,” Roets said.
Earlier this year, Reserve Bank governor Lesetja Kganyago said that although the country’s unemployment rate was already among the highest in the world currently at 27.7%, it was expected to further deteriorate in 2018.
The only other comparable countries to have such high rates of unemployment, according to data from the International Monetary Fund, are Spain and Greece.