Households in South Africa are taking a beating

Neil Roets, the CEO of Debt Rescue, says that more South Africans are turning to credit to make it through each month as they can no longer afford to keep their lights on.

A recent survey from the group, with over 1,000 respondents, found that 77% said that the cost of electricity has become unaffordable, with 89% adding that it will significantly impact their budgets.

This week the country was thrust into all-day stage 6 load shedding that, by all accounts, will continue indefinitely – with the threat of moving to even higher stages hanging like a sword over the nation’s head, said Roets.

“This, in the same month that the massive 18.65% increase in electricity tariffs recommended by the National Energy Regulator of South Africa (Nersa) – and vehemently opposed from many corners – was implemented,” Roets said.

The CEO said that 40% of the polled respondents said that they were already spending between R500 and R1,500 per month to purchase electricity and that they were simply not able to absorb another increase.

This will lead to South Africans having to contend with another expense eating away at their savings and damaging their wallets.

Families who earn the least spend a disproportionate amount of their income on necessities like transport, electricity and food, said Roets.

Headline consumer price inflation reached 7.1% in March, up from the 6.9% expected by analysts and the 7.0% of the month before. Roets said this was primarily driven by rising food prices.

Over the last 12 months, food inflation has increased by 14% taking the annual food inflation rate to a 14-year high.

An overreliance on credit and the fact that consumers are belt-tightening was reflected in both Capitec and Standard Bank’s latest results.

Capitec, with over 20 million active customers said that credit impairments grew by 80% in the last financial year – totalling R6.3 billion.

Credit impairments refer to when a lender (the banks in question) loses money because the person who borrowed money from them cannot pay it back.

Over the first three months of this year, Standard Bank reported that credit impairments are higher than they were a year before on the back of ‘client strain and higher than anticipated interest rates.’

Capitec also reported that the average loan debit order increased by 20%, personal loans by 12% and average vehicle financing by 15% over the 2022 period.

Charnel Collins, the CEO of National Debt Advisers, said that in an age of instant gratification and readily available credit, it is increasingly important that consumers be aware of how they manage credit.

If not closely managed, these poor financial decisions can leave you stuck in a debt trap, said Collins.

National Debt Advisers said that by 2024, the household debt-to-income ratio in South Africa is expected to reach 68%.

To best protect against the debt trap, the group advised the following:

  • Set short and long-term financial goals
  • Stay on budget
  • Create an emergency fund
  • Pay off debt
  • Increase your income
  • Keep track of your progress

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