Dishing up debt to eat

By Wendy Jasson Da Costa

As desperate South Africans, including the upper crust, dig deeper debt holes to put food on the table, credit applications are soaring.

While the borrowing has been fuelled by rising food and electricity costs, the Covid-19 pandemic also had a long-term impact on finances.

Statistics from major credit bureaus show that consumers are borrowing to put food on the table, while struggling to prevent their cars and homes from being repossessed. And while there has been a surge in attempts to access credit, there has also been a downturn in the number of people who qualify.

The Pietermaritzburg Justice and Economic Dignity Group has warned that economic conditions are currently so dire and malnutrition rates so high that the effects would be felt for years to come. The organisation’s Mervyn Abrahams said South Africa was on the precipice of an “Arab Spring” because conditions on the ground were ripe for social unrest.

“Life is so difficult for people to survive, all they would need is a trigger to set off the kind of looting we saw in 2021.” He said it was incumbent on the state to find ways in which it could support households and that an increase in the child support grant and Covid-19 grant would be a good start.

However, the situation is unlikely to improve as a repo rate hike is predicted when the Reserve Bank’s Monetary Policy Committee (MPC) meets on Thursday. Debt Rescue SA chief executive office Annaline van der Poel said there was a “high possibility” that interest rates would increase but hopefully not as much as before.

“Our economy needs to remain competitive from an investment perspective so if the rest of the world is hiking interest rates, we might see the MPC follow suit.”

She said information from credit bureaus showed that from a consumer perspective things were “incredibly tough” and credit providers were forced to move on defaulters to recover their losses.

“They’ve seen a tremendous increase in defaults across the board of the different credit agreements they have. This includes homes and vehicles because usually that makes up the biggest part of your debt expenditure. We’ve picked up that the credit providers have absolutely been left with no choice but proceed with legal action and then repossessing vehicles and homes.”

Van der Poel said how quickly they acted against defaulters was up to each credit provider, and included factors like how old the debt was, and what payment arrangements could be negotiated.

She said by law, debtors had 20 business days in which payment must be paid after which the credit provider could inform them that legal action would be taken. Debtors then had 10 business days to make payment or face legal action.

“All of us generally tend to live to the maximum of our means. Because of the onslaught of interest rate hikes we’ve seen over the last year, what’s happened is that nobody foresaw that it would go up by as much as it had, as quickly as it had,” said Van der Poel.

According to Experian, one of the country’s main credit bureaus, debt review applications had increased steadily over the past four years even among “high affluence consumers”. It said consumers had increasingly recognised the benefits of the debt counselling process and used this to repair their debt situation.

“This just highlights the fact that high affluence consumers are under increased pressure to make ends meet from a cost-of-living perspective, and we are now at a point where these consumers are looking at debt review to ease the financial pressure,” Experian noted on its website.

It said those opting for debt review included FAS Group 1 or “luxury living” consumers which represented the “upper crust” who had the financial freedom to afford expensive homes and cars and made up 2.5% of the credit population. It also included the FAS Group 2 which consisted of “aspirational achievers”, typically young and middle-aged professionals with the resources to afford a high level of living while furthering their careers, buying property, and establishing families. This group represented 9.3% of the credit-active population, Experian said.

South Africans owed R154 billion in credit card debt in the first quarter of 2023, said TransUnion. However, the credit bureau noted that even though the demand for credit surged, South Africa’s housing market remained robust and showed growth despite rising interest rates. It said growth in the housing sector was spurred by the sale of high value properties to affluent consumers and people moving from one part of the country to another, encouraged by the continuing remote work trend.

“In the face of economic adversity, South African consumers have shown increased demand for various forms of credit, from clothing and retail revolving accounts and credit cards. Lenders, reacting cautiously to this heightened credit usage, have improved their risk management practices, evidenced by lowered average limits on new credit products and a decline in serious delinquency rates.”

In June, online research company TrendER/infoQuest conducted a financial survey of 300 South Africans and compared it with the results of a survey done in 2022. Those polled said that since January they had accessed credit such as personal loans, credit cards and even excess funds on their home loans. Others turned to family, friends, stokvels and even mashonisas (loan sharks) to make ends meet.

At least 29% of respondents, mainly in the 18 – 25-year-old category, had taken on an extra job. The survey showed that 19% had sold valuables such as jewellery and art, and at least 20%, especially those over the age of 50, had sold household items over the past six months.

TrendER/infoQuest managing director Mogorosi Mashilo urged consumers to be cautious because debt had long-term consequences and could easily spiral out of control. “Consumers are struggling to pay not only the debt that they have, but also to cover everyday costs such as groceries and petrol,” said Mashilo.

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