www.businesslive.co.za: 26 October 2011 – Zeenat Moorad
For many embattled South African consumers, having to seek help through a debt counselling facility is often a discomforting realisation to come to.
For cash-strapped consumers, debt counselling is a Scarlett letter of sorts, that sees many individuals delaying their debt application for fear of being ostracised.
But with a new study from leading debt counselling institution DebtSafe, revealing that 78% of a household’s income is spent on repaying debt each month, many South African consumers are over-extending their finances and landing in hot water.
Earlier this month, SA’s Bureau of Market Research (BMR) found that South African consumers continued to feel financially vulnerable in the second quarter and were likely to remain so for some time.
Consumer financial vulnerability is measured by determining how consumers view their personal balance sheets and the level to which they experience financial vulnerability on the four factors of income, expenditure, savings and debt servicing.
Spending more than earnings, bad financial planning, too much debt, not having sufficient savings to draw on, low income, and job losses were identified as current factors that brought about financial vulnerability among SA consumers.
Hein du Plessis, managing director for DebtSafe said that one of the latest trends analysed through applications that the company had received, was the rising number of women divorcees seeking debt review.
“The main reason for this occurrence is the ‘baggage’ a divorcee inherits when a settlement is reached. Although parties should carefully consider a settlement in this regard, more often than not the woman was dependent on the income that husband provided and no longer had any means to repay the accumulated debt,” he said.
A common misconception of utilising a debt counselling facility is that consumers would have to pay more to creditors over a longer period of time, but Du Plessis said that this is not always the case.
“DebtSafe has discovered that clients actually end up paying less and are often out of debt sooner. This is due to the in duplum rule of the National Credit Act, which limits the amount of interest and fees a consumer under review will pay.
“Over 41% of our clients are in possession of a court order which officially rearranges their debt – although the remaining percentage are still in the process, orders are granted daily in over 300 Magistrate’s Courts in SA,” he said.
DebtSafe’s study further indicated that households where owners between the ages of 31 and 45 with two or more children had a higher risk of being in arrears due to the high demands of their lifestyle.
“It is also shown that black and white race groups have a higher tendency to become overdrawn,” the company noted.
According to the National Credit Regulator’s (NCR), second quarter consumer credit market report, the total outstanding gross debtors book of consumer credit for the quarter ended June increased by 1.32% from R1.21-trillion to R1.23-trillion.
The report, which is based on returns which credit providers are required to submit in terms of the National Credit Act (NCA) also found that credit facilities, which mainly consist of credit cards, store cards and bank overdrafts increased by a whopping R1.63 billion or 15.65% quarter on quarter.
Though decades-low interest rates has allowed some consumers to overindulge, ominous warnings from those in the know suggest the ripple effects of the global debt crisis and the increase in food, transport and utility costs will pose an uphill struggle for consumers, meaning that folks should probably tighten their purse strings, plan a budget and use (mostly) cash.