SA needs to dig itself out of the chasm of debt

Mr X was awarded 12 loans from one bank over a nine-month period – without being able to cover the payments for the first loan he took out.

” South Africans spend money they have not yet earned on goods they do not need Debtsafe MD Hein du Plessis says this is one of the many case files that the debt counselling firm worked on, as South African consumers continue to live beyond their means four years after the National Credit Act came into effect to curb this kind of abuse.

The act was passed in 2007 to protect consumers from becoming over indebted, but on average, South Africans still spend more than 75% of their disposable income on covering credit charges. Compare this to Europe, where consumers spend only 14.5% of their disposable income to pay creditors, and one begins to realise how serious the debt problem really is.

More than 200000 indebted SA consumers are registered for debt counselling, which was introduced through the act as a statutory measure to assist South Africans with debt problems .

Minister of Planning Trevor Manuel warned last month that a rising number of consumers would be “pushed over the brink” by debt charges, even with interest rates and debt service costs at historic lows in South Africa .

Du Plessis confirms the minister’s statement that South Africa’s middle-class earners are highly indebted, saying that the consumers knocking on the doors of debt counsellors earn an average salary of at least R15000, with about 89% of their disposable income committed to paying off debts.

Manuel said that it was a cultural problem, with South Africans wanting things they cannot afford and spending money they have not yet earned on goods they did not need.

Du Plessis says the South African culture of overspending is often further exacerbated by irresponsible lending by banks and other financial institutions. He refers to a case in the Eastern Cape where one of South Africa’s leading banks granted a pensioner a bond of R350000 with a monthly installment of R4200 – when the man and his wife had a monthly income of only R3700 and household expenditure of R2500.

Through the use of the National Credit Act, that loan was scrapped in the courts because of the bank-s reckless lending.

Du Plessis says while the case served as a warning to banks on irresponsible lending – particularly that relating to mortgages – a new trend in irresponsible lending relating to consumer credit has been on the rise.

Du Plessis emphasises that consumers should stop borrowing to get themselves out of financial difficulties and become proactive in dealing with debt.

“The first step to get oneself out of trouble is to stop borrowing.

“As debt counsellors, we are able to assist indebted consumers through restructuring their debt to assist them in meeting monthly payments.”

The National Credit Regulator has determined a standard and limited fee for all debt counsellors in the country, which is calculated into customers’ restructured monthly installments to assure that abuse of cash-strapped consumers is avoided.

Through the debt-counselling process, says Du Plessis, Mr X will be able to pay his creditors and become a fully functional consumer again, while being protected against legal action and retaining his assets.

If you find yourself overwhelmed by debt, it’s time to take proactive steps towards financial freedom. The alarming trend of overspending and irresponsible lending has left many South Africans in dire financial situations. At Zero Debt, we are committed to helping you navigate out of this chasm of debt. Our experienced debt counsellors will work with you to restructure your debt, ensuring manageable monthly payments and protecting your assets. Don’t wait until it’s too late – contact us today to start your journey towards financial stability and peace of mind. Reach out to us via our Contact Us page for personalized assistance.

FAQs and Answers

1. Why is South Africa facing a debt crisis?
   South Africans often spend more than 75% of their disposable income on debt repayments, driven by overspending and irresponsible lending practices.

2. What is the National Credit Act?
   The National Credit Act, passed in 2007, aims to protect consumers from becoming over-indebted by regulating credit agreements and introducing debt counselling.

3. How does debt counselling help over-indebted South Africans?
   Debt counselling allows consumers to restructure their debt into manageable monthly payments while being protected from legal action and retaining their assets.

4. What is an example of reckless lending in South Africa?
   A pensioner was granted a R350,000 bond despite having an income too low to cover the instalments. The loan was scrapped in court under the National Credit Act.

5. What are the consequences of irresponsible borrowing?
   Continued borrowing to manage debt worsens financial situations, increases monthly repayments, and heightens the risk of legal action or asset loss.

6. What is the average debt burden for South Africa’s middle class?
   Middle-class earners, averaging R15,000 monthly income, often commit up to 89% of their disposable income towards debt repayments.

7. Are debt counselling fees regulated in South Africa?
   Yes, the National Credit Regulator sets standardised, limited fees that are included in the restructured monthly payments to avoid abuse of consumers.

8. How can I take the first step to financial recovery?
   The first step is to stop borrowing and seek help from a registered debt counsellor who can restructure your payments and protect your financial future.