More South Africans are falling into the debt trap yearly and this past year has been one of the worst for a long time with record numbers seeking protection under debt counselling legislation.
CAPTION: Cartoon by Yalo
‘Consumers are getting into debt to cover basic needs’
Neil Roets, CEO of national debt counselling firm Debt Rescue said there had been more than double the number of deeply indebted individuals who applied for relief under the National Credit Regulator’s debt review process.
“We know from figures released by the Reserve Bank that the growth in total credit extension to the private sector in November last year increased to 9,6% compared to the figure of 8,3% in October 2012. Much of the increasing credit load has been piled on credit cards where individuals are paying very high rates of interest and it is clear that crunch time has come for many South Africans.”
He said most of the consumers seeking help from his company were in danger of losing their homes, vehicles and other property.
“While debt counselling and the subsequent debt review process does help – mostly in assisting debtors to spread their outstanding debt over a longer period of time and protecting their assets against repossession, that in itself was not the solution.
“South Africans need to be more responsible in their financial management and ask themselves the question ‘Can I afford it’ rather than ‘Do I want it’, Roets said.
The greater demand for credit peaked at more than 10.4 % compared to the same period last year according to the Bloomberg news service with total household debt in November peaking at R1 282,9-billion compared to R1 264,4-billion in October 2012.
Investec economist Annabel Bishop, said that the average household had 31,8% more unsecured debt than a year ago. This includes credit card debt.
She said the unsecured loans that households and business incurred was around R30-billion which was more than 20% greater than a year ago.
Roets said a disturbing aspect of the rapid rise in indebtedness was the fact that it outstripped growth in the economy.
“Something has to give and we end up with the flotsam and jetsam of the debt crisis – people about to lose their homes and pretty much everything else they own.
“While debt counselling can certainly help individuals to hold on to their property by preventing banks and other credit grantors from seizing it, it does not address the underlying problem about the sometimes reckless manner in which South Africans incur debt. Many retailers are equally guilty in the sense that they encourage consumers to incur debt that that they oftentimes full well know they cannot afford to repay.
“Here the National Credit Act fortunately comes into good stead. If it can be proven in court that a credit grantor extended credit recklessly, that debt can be cancelled by the court,” Roets said.
A powerful tool available to debt counsellors is the so-called in duplum rule that prevents outstanding debts from accumulating to many times the original figure as was the case in the past. In terms of this rule, the total of all fees, outstanding interest and legal fees may not exceed the capital as at the time of the default on the account, Roets said.
The extent of the crisis has also been demonstrated by the fact that many pawn brokers are reporting record business from indebted individuals pawning everything from vehicles to flat screen TVs.