South Africans are in a credit crisis and it’s no longer about keeping up with the Joneses

By Neil Roets

The most important right consumers should demand is a stable economy where all South Africans can prosper, and a stop to the relentless cost-of-living increases that are decimating people’s lives, writes Neil Roets, the CEO of Debt Rescue.

SOUTH Africans are in trouble. Deep trouble.

Warning signs have been flashing since late 2022 when disturbing results from the Eighty20/XDS Credit Stress Report for Q4 2022 showed an increasing appetite for credit among South Africans, with more than 800,000 new entrants into the credit market in the fourth quarter of 2022 – the highest since the Covid-19 pandemic.

This compared with 600,000 the previous year, signalled a deepening debt spiral among more than 18 million consumers – more than one-third of the population. Disturbingly, this coincided with a surging number of loans, notably credit card, vehicle and asset finance as well as home loans, all newly in default.

South Africa’s lenders responded to the surge in bad debts by tightening lending criteria as consumers struggled to keep up with repayments.

The statistics of Eighty20’s Q3 2023 Credit Stress Report showed that, although the annual change in the rate of new defaults remained high, it was down 1.3% on the previous quarter, having steadily increased since 2022 Q1.

The Experian Consumer Default Index for Q3 2023, however, reported a significant increase in consumer debt default compared to the third quarter of 2022, from 3.69 to 4.88 or 32%, indicating that consumers are increasingly struggling to meet their debt obligations amid the cost of living crisis.

Fast forward to 2024 and three of South Africa’s biggest unsecured lenders, Standard Bank, Nedbank and Absa have reported a massive surge in credit impairments ranging from 42% to 60%.

While Standard Bank’s credit impairment charges in the six months to June 2023 leapt 42% to R8.4 billion, Absa reported a 60% surge in total credit impairments to R8.3bn in its interim report, and Nedbank’s impairment charge increased 57% to R5.3bn as reflected in its interim results for the six months ending 30 June 2023.

Additionally, credit card growth grew slightly from 9% in October to 9.1% in November.

Here is the kicker.

The credit crisis does not stem from a wild and unabandoned credit splurge to “keep up with the Joneses” or live above our means.

For most South Africans, it is about putting enough food on the table to feed the family, making their monthly income last until the end of the month, finding a way to afford the petrol or transport costs to get to work and school, and keeping the lights on.

It is unequivocally the result of a cost-of-living crisis the likes of which we have never seen before in this country, caused by the weak economy, limited income growth, high inflation, escalating petrol and electricity costs, not to mention the highest interest rates we have had to contend with in more than a decade. And it is hitting the wealthy as much as the struggling middle and working class.

The head of transactional banking at Absa Everyday Banking, Nick Nkosi, says the financial stresses people are feeling are apparent, with the bank recording a steep increase in credit applications and extensions in 2024.

“In 2023, Absa saw the highest application rate for credit ever, and this continued into January 2024. We see the trend moving in an upward trajectory,” he says.

It is crucial for consumers and financial institutions to monitor the credit environment closely and make informed decisions to navigate our challenging economic landscape.

Especially as economists are predicting another rocky year for South Africa on the economic front. Equally, the government needs to be cognisant of the “state of the consumer” and acknowledge that there is a growing humanitarian crisis that needs to be addressed urgently.

This is evidenced by the dangerous trend of a growing number of people resorting to credit facilities to meet their monthly grocery bill requirements. Surely this should raise red flags?

Learning how to cope

While there are many thousands of South Africans in the privileged position to make changes to their lifestyle in order to manage their credit, there is no point in advising millions of others to assume the brace position and buckle up, when most of the nation has done this, and still cannot make ends meet.

What people need is solid and constructive advice on how to cope.

Reduce your reliance on credit

Right now, the best advice I have to offer is to reduce your reliance on credit as much as possible.

High interest charges are one the most expensive forms of debt, as the additional costs can run into the hundreds or even thousands over 12 months.

Therefore, the less credit you have, the less you pay for almost everything – from your vehicle and home to your clothing and entertainment.

Cut back on just one store card. This can free enough money to buy groceries for the month without accumulating more debt.

– Pay off expensive loans. This will reduce your dependence on bank credit facilities and is among the most effective ways to save, as the interest charges eat away at your income.

– Start a home industry like a carpentry shop or handy-man services to pay off your debt.

Millions of people have successfully started side-hustles to complement their income.

The ideas are endless, from becoming a rideshare driver or delivering packages to starting a podcast or YouTube channel.

Downsize wherever possible

Owning a car is a significant investment for many South Africans, providing mobility and convenience. However, when life circumstances change or interest rates make it impossible to meet payments, downsizing to a more affordable model of car can mean the difference between staying afloat or drowning in debt.

Your home is probably your pride and joy, but your home loan is the first cost to rocket when interest rates are hiked. Moving to a more affordable house or flat can see you through difficult economic periods, until you can afford the home of your dreams.

Grow your own food

If you have some space, plant some hardy, easy-to-grow vegetables like spinach, lettuce, tomatoes and green peppers, or start a community garden where everyone grows something different and swop your produce when you harvest, to save on your food bill.

Seek help

If you have made all the changes and still cannot keep your head above water, seek help through debt review, where a registered debt counsellor can assist you to manage your financial predicament. Debt review allows debt repayments to be restructured at lower monthly instalments, over a longer period, to ensure that debt is repaid, without incurring ever more debt for living expenses and ending up in a debt spiral. It is never too early to ask for help.

Demand a stable economy

I have made this point before – and it is even more relevant now: the most important right consumers should demand is a stable economy where all South Africans can prosper, and a stop to the relentless cost-of-living increases that are decimating people’s lives.

We don’t have a stable economy. Far from it. We have high crime rates, collapsing infrastructure, government overspending and an unstable political environment, with no sign of any of these abating any time soon. Essential services are no longer working efficiently, and load- and water-shedding are becoming the new normal.

What we can do is demand an end to unjustifiably high food prices, unacceptably high interest repayments and unaffordable transport costs, among others.

We can draw on the power of our voices and take a stand. We can use our social media platforms to call out the huge retailers who take advantage of economic conditions to charge more for their products. We can make our voices heard by the authorities that lead our parastatals, like Eskom and Transnet.

We can use our vote to ensure that competent leaders manage our municipalities and lead our country.

Or we can stand by and watch our neighbours lose the fight for survival. The choice is ours to make.

Neil Roets is the CEO of Debt Rescue and a consumer debt expert.

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