SA needs to dig itself out of the chasm of debt

Mr X was awarded 12 loans from one bank over a nine-month period – without being able to cover the payments for the first loan he took out.

” South Africans spend money they have not yet earned on goods they do not need Debtsafe MD Hein du Plessis says this is one of the many case files that the debt counselling firm worked on, as South African consumers continue to live beyond their means four years after the National Credit Act came into effect to curb this kind of abuse.

The act was passed in 2007 to protect consumers from becoming over indebted, but on average, South Africans still spend more than 75% of their disposable income on covering credit charges. Compare this to Europe, where consumers spend only 14.5% of their disposable income to pay creditors, and one begins to realise how serious the debt problem really is.

More than 200000 indebted SA consumers are registered for debt counselling, which was introduced through the act as a statutory measure to assist South Africans with debt problems .

Minister of Planning Trevor Manuel warned last month that a rising number of consumers would be “pushed over the brink” by debt charges, even with interest rates and debt service costs at historic lows in South Africa .

Du Plessis confirms the minister’s statement that South Africa’s middle-class earners are highly indebted, saying that the consumers knocking on the doors of debt counsellors earn an average salary of at least R15000, with about 89% of their disposable income committed to paying off debts.

Manuel said that it was a cultural problem, with South Africans wanting things they cannot afford and spending money they have not yet earned on goods they did not need.

Du Plessis says the South African culture of overspending is often further exacerbated by irresponsible lending by banks and other financial institutions. He refers to a case in the Eastern Cape where one of South Africa’s leading banks granted a pensioner a bond of R350000 with a monthly installment of R4200 – when the man and his wife had a monthly income of only R3700 and household expenditure of R2500.

Through the use of the National Credit Act, that loan was scrapped in the courts because of the bank-s reckless lending.

Du Plessis says while the case served as a warning to banks on irresponsible lending – particularly that relating to mortgages – a new trend in irresponsible lending relating to consumer credit has been on the rise.

 

Du Plessis emphasises that consumers should stop borrowing to get themselves out of financial difficulties and become proactive in dealing with debt.

“The first step to get oneself out of trouble is to stop borrowing.

“As debt counsellors, we are able to assist indebted consumers through restructuring their debt to assist them in meeting monthly payments.”

 

The National Credit Regulator has determined a standard and limited fee for all debt counsellors in the country, which is calculated into customers’ restructured monthly installments to assure that abuse of cash-strapped consumers is avoided.

Through the debt-counselling process, says Du Plessis, Mr X will be able to pay his creditors and become a fully functional consumer again, while being protected against legal action and retaining his assets.