Cape Town – More young people face crippling debt as unsecured lending is spiralling out of control, a debt management firm warned on Tuesday.
Debt Rescue CEO Neil Roets said that younger people are getting themselves into hot water.
According to Debt Rescue, the number of young people in the 18 to 34 year age group who have become over-indebted has grown significantly over the past year.
The number of consumers applying for debt review with the company on a monthly basis almost doubled over the past six months, Roets said.
About 9 million consumers are in arrears by at least three months on at least one account, the firm said.
It added that this segment may also have a debt judgment or administration order to their names.
“It’s a well known fact that almost half of all credit active consumers in South Africa have impaired credit records.”
Roets said a major factor in the equation is that it has become easy for consumers to get unsecured loans from banks and large amounts of credit from retailers and other credit grantors.
However, he said that the National Credit Regulator (NCR) is tackling reckless lending.
The NCR has already asked the National Consumer Tribunal to fine African Bank Investments [JSE:ABL] R300m over a case of irregular activities.
In March, DebtBusters spokesperson Ian Wason warned that once young people are trapped in debt, they are unlikely to ever buy a house or save for the future.
At the time DebtBusters cautioned that the average age of debt-ridden consumers had fallen from 42 to 34, showing that younger consumers are fast getting into trouble.
“This latest data is by far the most worrying, as it shows that it is the younger generations who are getting into trouble with debt, and getting into trouble quickly,” Wason said.
DebtBusters added that in recent years, unsecured credit has been growing at rates of up to 40%.
“Unfortunately we can see very little evidence of this money being used for anything other than consumption.”
People are spending more than they earn, and this could only end in a debt spiral, with consumers taking out increasingly expensive loans to keep up with existing loan repayments.
“DebtBusters implore credit providers to perform more stringent checks on their clients before they lend, to implement some form of percentage cap on net income to debt repayments.”