No end to debt troubles

Four key reports have found that South Africa’s consumers are in for a rough ride which is going to translate into more consumers falling ever deeper into the debt trap.

Neil Roets, CEO of one of South Africa’s largest debt counselling firms, Debt Rescue, said the reports by the International Monetary Fund (IMF), the World Bank, The South African Reserve Bank and the TransUnion Consumer Credit Index all found that consumer debt levels were high and rising.

“They largely concur that the South African economy is slowing down and that debt levels are skyrocketing which all translates into a very bleak future for deeply indebted consumers,” Roets said.

The report by Credit information company TransUnion said the fall in their index reflected deteriorating household cash flow as rising living costs and a weak job market take their toll on income security.

It showed conclusively that “consumer credit health” continued to deteriorate.

It reported that consumer loan defaults continued to rise and that the number of civil summonses for debt – which is the first legal step in the recovery of debt – jumped by 5.6% year on year in July to 78,908.

Roets said total consumer debt was now topping R1, 44-trillion (according to Statistics South Africa).

“We are already seeing a dramatic growth in the number of people who are seeking protection from their creditors by going under debt review. There has also been a significant growth in the number of consumers who are having their salaries docked by garnishee orders and who are being blacklisted because of judgements against them.”

He said rising food and fuel costs and slow economic growth are making it difficult for many South Africans to pay back their loans on time. One in every four South Africans is unemployed and the number of borrowers with impaired credit records – three or more payments in arrears – has risen to nearly 50 percent.

“The writing is on the wall for many middle class families who have only recently escaped from dire poverty. With e-tolling now a certainty after Outa lost their final appeal, the additional costs imposed on them directly through tolling and indirectly through the increased costs of goods travelling on the tolled roads, many will be pushed back into poverty,” Roets said.

Merina Willemse, an economist with the Efficient Group said it was imperative that consumers try and reduce their debt load.

“Sooner or later the prime interest rate is going to rise. We estimate that it could be as early as next year. This means that consumers who are now barely able to service their debt will fall into arrears.”

The South African Reserve Bank’s quarterly bulletin found that debt levels remained high. The amount of debt owed by consumers as part of their income was 75.6%.

“This means that if you earn R1 000.00, R750.00 of your income is already owed to banks or micro lenders,” Willemse said.

The International Monetary Fund’s prediction of weaker demand and lower commodity prices will impact directly on the mining sector with the likelihood of more miners facing retrenchment, Roets said.

“We know from repeated pronouncements by people like economist Dawie Roodt that we need a growth rate of around 7% just to accommodate the new workers who enter the economy after completing their school career.

“These growth rates predicted by the Reserve Bank remain far from the country’s desired levels of 5% a year and above, which will allow for the creation of millions of jobs and a start to the eradication of poverty,” Roets said.

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