South Africans Debt in a Pandemic: How Do You Compare?

A dark cloud hangs over the heads of 10.47 Million people in South Africa. Unmanageable debt. If you’re one of the millions of South Africans with an impaired credit record and crippling debt, how do you compare? 

Millions of South Africans cannot live without credit every month. And millions are already blacklisted due to their impaired credit records.

To add further alarm, thousands continue to fall further behind on their current repayments. A scary precedent when you know the consequences of such actions. 

With so many carrying the heavy burden of debt on them to survive, the number of individuals in good standing with their credit providers has decreased.

TransUnion’s Q2 2021 South Africa Industry Insights Report shows a clear trend in personal loan delinquencies; payments past due by 30 days or more.  

This shouldn’t come as a surprise when we look at the harsh economic environment we are playing in. Between a global pandemic and the nation’s aftermath tipping the scales through looting, unrest, layoffs, business closures, unemployment, and the ever-rising cost of living… consumers are under pressure.

Transunion also reported a decline in credit-active consumers for 2021 as credit providers tighten their reins on lending. However, to paint a darker picture out of this lonely statistic, total balances owed have seen an increase.   

With R2.04 trillion in outstanding debt, 27.66 million credit-active South Africans and a total of 85.99 million credit and services agreements, debt has without a doubt become a dark cloud indeed.

Debt and the Average South African

Debt has become an important part of survival for the majority of South Africans. But just how much debt does the average South African have?

The majority of working, credit active South Africans pay between R10,000 to R15,000 towards their debt every month. And this segment earns between R7,000 – R22,000 per month. 

South Africa’s debt lies in-store accounts, personal loans and credit cards. Meaning that the majority of credit-active consumers spend most of their income on credit that often does not benefit them in the long run… These types of credit tend to have high interest rates and encourage the purchasing of assets that lose value over time. 

TransUnion’s Q4 2020 South Africa Industry Insights Report shows that out of the 7 million open credit card accounts recorded in late 2020, the average South African owes around R19,079 on their account. Credit cards are one of the most popular forms of credit used under clothing store accounts where the average amount owed is around R2,025.

And of all the 6.7M personal loans held by South Africans, the average outstanding balance sits at R41,337. Personal loans make up the third highest in total credit agreements. And TransUnion’s Q2 2021 report is showing a worrying trend of delinquencies on personal loans. Many people are simply unable to cover the minimum repayment of their loans. 

It is interesting to note that delinquencies on credit cards have actually improved. Consumers are clearly showing that they need access to their revolving credit every month. Often for the purchase of food, fuel and other necessities. 

Vehicles and home loans are the least accessed credit in South Africa. Reasons for this lie in the value of these assets that many simply cannot afford. Of the 2.3 million vehicle finance accounts open, the average amount still owed is around R214,714.

And of 1.8M home loans issued, the Average South African owes R561,630 on their home loan. However, the number of accounts are low in the grand scheme of things and as such only account for 2% of active credit and service agreements.

That means the average South African with a home loan, vehicle finance and a credit card is around R800,000 in debt. 

And the average South African with a store card, credit card, personal loan and vehicle finance owes around R280,000.

Those who do not have long term debt such as a home loan and vehicle finance but have a credit card, personal loan and store account owe around R60,000 in debt.

The Over-Indebted South African 

Total consumer household debt has been increasing at a steady rate over the past 5 years. As more and more people fall into their credit to get by each month, debt continues to snowball and so do the monthly debt repayment amounts. 

TransUnion’s Q3 2021 Consumer Pulse Index findings indicate that 47% expect to be unable to pay at least one of their current bills and loans in full since being impacted by the pandemic.

The overindebted South African struggles to make all their monthly debt repayments each month. The cost of living is often supplemented with credit cards or personal loans. And although many aren’t in arrears just yet, there are millions currently unable to make their repayments every month.

In South Africa, over-indebted individuals currently have three debt relief options: 

  • sequestration under the Insolvency Act
  • administration under the Magistrates Court Act
  • debt review under the National Credit Act

The National Credit Act 34 of 2005 and its regulations give the struggling over-indebted consumer an opportunity to remedy their financial situation. The most consumer-friendly option for immediate financial relief is through the debt review process. 

The Most Affordable Solution to Tackling Debt?

Debt Review. Yes. And the numbers are there to prove it. 

Debt review has been highly successful in providing struggling individuals with immediate financial relief from their current debt repayments. The process allows the consumer to keep their assets while offering them the ability to pay their debt in an affordable manner. 

To ensure the consumer is handled fairly, a third party, and registered Debt Counsellor, needs to be appointed to negotiate on behalf of the consumer for a legal binding agreement that allows the consumer to lower their monthly debt repayments. 

By adjusting the repayment terms in line with their income, the consumer will be able to remedy their financial situation without being at the risk of losing assets such as their home or car. The process also ensures that consumers have the necessary funds to pay for essential living costs. Debt review was put in place to protect the vulnerable and to put in defence against the expensive costs associated with defaults, judgements and growing interest on high balances.

According to StatsSA, 62% were rejected for credit in the past quarter of 2021 by traditional banks. With so many being denied access to credit, loan queries through less conventional establishments will only continue to grow. 

For the over-indebted South African, further lines of credit whilst living off modest salaries that don’t increase in line with inflation will only push them further down the spiral. As consumers continue to opt for loans to accommodate the cost of living, and many continue to fall behind on current repayments, debt review should be considered. A legally reduced repayment is certainly better than a non-payment.

Debt Rescue, a registered Debt Counsellor, helps consumers legally reduce their monthly debt instalments by negotiating with credit providers through the debt review process.

If you feel that you may be an over-indebted South African, like thousands of others you have the right to seek our assistance and to take advantage of the legislation designed to protect you as a consumer. 

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