The majority of South Africans spend nearly 80% of their hard earned income on debt repayments!
Statistics show that there are approximately 23.37 million credit active consumers in South Africa, of which 10.53 million have impaired credit records- as per the Consumer Credit Market Report for the quarter ending 30 June 2015. These numbers are escalating monthly and do not include loans granted by unregistered loan sharks. An impaired credit record is one where an account is three or more instalments in arrears or where an administration order or a judgement has been obtained against a consumer.
Not all debt is bad, though. There are not many people who can buy a house or a vehicle for cash. This is classified as good debt; although some experts would tend to disagree. It is the bad debt that causes the problems: loan upon loan and all the clothing accounts and credit cards.
The proceeds of the majority of these unsecured loans are used for consumption and add no value to the nett worth of the consumers. The proceeds of these loans are not used to produce income that will help in servicing the monthly instalments. The consumers are relying on their monthly salaries to service the monthly instalments with the result that less money is available for saving and investing; not to mention that there is also less money available to provide for their necessary monthly expenses.
When one look at these statistics, the following questions comes to mind:
- How and why did this happen?
- What are the repercussions for consumer households?
- Can the situation be reversed?
Let’s have a look at the above questions.
How and why did this happen?
In the last couple of years, our society has become more consumer driven.
The large financial institutions and retailers have embarked on major advertising campaigns to get their share of the consumers’ hard earned salary. It is not uncommon to find consumers with up to 30 and in some cases, even more accounts from different credit providers!
The major onslaught from credit providers normally occurs between October and December each year, and it is heart-breaking to see how consumers fall prey through slick advertising methods. Add to this the myriad of micro-loan institutions that lend out money at high interest rates; and you have a recipe for disaster.
The consumers are not blameless, though. In their quest to “keep up with the Jones’”, they incur unnecessary debt that comes back to haunt them afterwards.
What are the repercussions for consumer households?
We all know the saying: “when poverty comes in through the front door, loves leaves through the back door.” Financial difficulties play a major part in the break-up of marriages, and because the parents had no financial discipline, the big losers are the children. Further effects are stress and sleepless nights.
Financial stress is a major contributor to absenteeism from work which results in loss of productivity. It also undermines the health of employees.
Financial fitness increases the morale of employees. It also reduces the phenomenon where employees resign to get their hands on pension/provident fund benefits to pay their debt.
It has been established that many consumers have no clue about the real cost of credit. The cost of credit per account consist of the monthly service fee (normally R57.00), insurance (this can vary depending on the amount of the debt) and interest. If a consumer has 10 accounts the service fees alone amounts to R570.00 per month! Money wasted!
This could be a major reason why consumers find it difficult to pay for necessary expenses such as groceries, water and lights, school fees, etch.
A lack of a proper budget is definitely a big reason why consumers spend 80% of their income on debt repayments. If they had one, they would have seen the red lights.
We are not in this world to be slaves of lenders. Consumers should become pro-active and say enough is enough!
Can the situation be reversed?
The answer is a definite yes!
Close your eyes and imagine how it would feel not to worry about bad debt repayments! Isn’t it a wonderful feeling?
Although debt does not accumulate overnight, it is possible to eliminate debt if one implements a budget and start with a concerted debt elimination plan using one’s own money. By taking small steps, you will get there.
In the book “Your Key to become Debt Free and experience Financial Freedom” by Philip J. Nortjé, which can be described as a D.I.Y guide; you will learn the following:
- How to increase your nett worth whilst eliminating your debt;
- Distinguish between bad debts and good debts- as well as the difference between wants and needs;
- Use the customized Budget planner to tell your money where it must go;
- Use the Debt Knockout calculator to eliminate your debts in no time and save huge amounts in interest in doing so;
- The power of compound interest and how it can also work against you;
- Teach your children to become financially literate, and much more.
- The vicious cycle of debt and inflation – with permission from Daan Joubert.
The book is self-published and printed on demand. It will be available from 25 January 2016.
He is also in the process of developing a financial fitness manual whereby employers can assist their employees to overcome debt related problems.
Philip J. Nortjé
Cell no: 082 953 8434