In this week’s blog, we look at the latest analysis released by the World Bank that declared South African consumers as the biggest borrowers in the world. The increasing problem of credit extensions and slower job creations, and the concerns that the economy won’t be able to carry the burdens forever.
Since the National Credit Act came into Law, the lending criteria for all consumers has been tougher than before 2007. According to the World Bank 2014-15 report declared that South Africa were the world’s biggest borrowers. We will show that South Africans are failing to manage their debt responsibility and that some creditors are not applying the correct affordability criteria when consumer borrow.
Looking at the past 9 months, the turns the economy has taken, it certainly has not been easy-going cash-strapped consumers in South Africa. It is time for consumers to get organised, and take stricter control of their finances. The head of financial Education at Old Mutual here is the latest article: https://www.moneyweb.co.za/mymoney/moneyweb-personal-finance/seasons-greetings-and-budget-cleaning/
Let us take a look at the latest credit bureau listings, in 2016 there were 24.31-million credit-active consumers, and 9.76-million impaired credit records. It is alarming to think that 40% or all active credit report two out of every five-active reports are impaired. The official stats released for 2016’s fourth quarter, consumer debt is more than R1.69-trillion. For most people, a home loan will be a largest debt that they will ever incur in their lifetime. R8.75-billion or more than half of the consumer debt book value are comprised mortgages which are considered as wealth-creation type of debt.
Looking at the stats released by the World Bank, the different categories, home loans is only 4.47% of credit accounts. Credit facilities like credit cards, overdrafts and store cards make up 65% of credit accounts and unsecured credit 14.6 %. These figures do not include informal debt like municipality or school fees and medical account outstanding debts. It is estimated that only 40% of consumers consumer-debt information is captured by credit bureaus. These figures are released by the World Bank and the survey of data.
A further survey of 1000 people in the Global Findex Report showed that 86% of South Africans took loans in 2016, mostly form acquaintances or private micro-lenders. Thus far South Africa courts have issued 48170 Civil summonses issued for debt in June. This debt was valued at a debt book of R350-million.
Did you know that when your income is lower you’re a higher risk to credit market? The higher the risk factor the higher interest is charged on credit agreements, and these consumers are charged more than the high-income earners when you compare the lending interest rates on the exact same debts. The higher risk consumers should be excluded from entering the credit market, many credit providers allow access with higher interest rates. In South Africa, we have a lack in financial education where the most vulnerable should be exposed to.
How does one really get rid of debt?
Start with paying of expensive debt first. What does this mean for the consumer that has no financial background? These easy to follow steps can help anyone with or without a financial background to get of debt.
Step one, Let us look at your debt exposure, list all your debts: You have mortgage, Vehicle, credit card, overdraft, revolving credit, in-store cards, store cards, pay-day loans, personal loans and possibly pawned your vehicle for cash and that debt must also be included.
If you do not know what is the outstanding balances on each account you have, the monthly required debt payments, what fees and insurances, and the interest rates, it is best you contact all your creditors for the latest statement and get all the information right away.
You will need: the outstanding balance outstanding, the interest rate at which the lender borrowed you the money, what fees are added, and the contractual monthly payment that must be made.
Step two, see which creditors has the highest interest rate and start paying more into that debt every month.
Step three, do not leave your saving goal behind it is a great idea to open a tax-free savings account and start saving, even if you start with only R250.00 for the first 6 months. This is a good habit and the savings plan can be increased as debt has been paid off. When you saving money, it must be left where it is or be moved to an investment account. One should not use more than 40% of money saved to cover debt shortfalls, it is short sited and will put you back to where you were with no emergency or savings fund.
Step four, we keep on coming back to the budget, without a budget and knowing where you spending your money, the problem will remain unchanged. Start the budget and cut on expenses where you can and stick to the plan with the end in mind.
Step five, It is evident in most households that consumer do not keep track of spending. It is a good idea to start addressing the problem. But how? Well first of all you can start by keeping track of each payment or money spend in a store by taking a little black book and writing the amount down, and the date of the spent. Every week you can take the spending and calculate it together, you will be surprised to see where your money is going. As yourself was these things really so important and could it wait until a large debt is paid off. By keeping track of your expenses, every month will help to understand where the money is being spend, and whether that spending was necessary and help you making some tough decisions.
Step Six, another problem that’s been receiving a lot of attention from the National Credit Regulator and the media, is outdated fees and illegal subscription fees for magazines, or gym contracts that were never cancelled and the bank account you were using at that time is no longer in use. Take your accounts with retails stores and do a thorough check and make sure all old gym contracts are cancelled. If you any old bank accounts that was in use for many years, close them. If you have been a victim of unlawful magazine deductions on your store cards, please lodge a complaint with the National Credit Regulator (NCR) to get all those fees refunded to you. When you free up these fees start using them either in savings or to settle debts.
Step Seven, for many consumers there is no other alternative but to apply for debt review or look into sequestration which is the final step to get rid of debt. No matter how many consumers cut the budget, they simply can’t manage to pay the contractual payments on their mortgage loan, vehicle finance, credit cards, overdrafts, personal loans and store cards. Debt Review is a good step forward to pay your creditors a lessor amount and here at CDS we negotiate for lower interest on unsecured debt with our clients creditors. When the consumers vehicle finance, and all other unsecured debts are fully settled and the debt counselor receives the paid up letters from the creditors, CDS can then inform the mortgagee and exit the consumer out of debt review. The debt review will no longer be on the consumers name or credit record, and may not be held against the client who may then re-enter the credit market. For more information contact us here at CDS 021 930 5790 / 1 / 2 and let us look at the options together.
Here at CDS we assist consumers who need advice from our debt management specialist, we offer free debt management assessments and complete the debt restructuring process from start to finish. Our aftercare centre deals with inquiries from our clients creditors and resolve all matters with in 5 business days. We keep our clients informed of the progress on their debt review application and believe informed clients are happy clients. Please visit our website, here you can read more about CDS and use this easy link to make contact with us: http://debtcentre.co.za/contact-us/
There comes a time when one must take responsibility for finances, and take back control. Most of us no longer have parents that we can fall back onto, when we having it rough financially. Get organised and we here at Consumer Debt Support would like to hear from you. Please tell us if you would like a specific topic blogged about and we will gladly do that for you. We do believe change can happen when information shared can educate consumers to stand stronger financially.
Our sources Money web, old mutual, budget insurance 2 September 2017
Out sources: businesslive.co.za/bd/economy/2017-09-02-indebted-consumers-on-a-credit-knife-edge/