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72% Of South African Income Goes To Debt

Author: Melissa Cohen
Date: 2018-01-30
South Africa is one of the most indebted country in the world! With debt topping over R1.7 trillion, we find out what the future is for us!
With January finally over, many people are still feeling the pinch from the festive season. For many, this feeling will be a constant reminder of the debt that they accumulated over the holidays. Most South Africans will continue to get themselves further into debt. Nowadays, other external factors also have a part to play in encouraging debt. With the big buzz surrounding cryptocurrency, more specifically Bitcoin, many are gambling away their hard earned cash. According to a recent report by the Reserve Bank, over R1.71 trillion accounts for the total of consumer debt. This is frightening as people just don't stop spending money they don't have. We expose the reality of the debt situation in South Africa. Take a look at our findings.
Is debt ruling your life? Lower your insurance premiums and put those savings toward your debt payments!

Why Do People Accumulate Debt? 

Most South Africans struggle to save a portion of their salary as, most of the time, they are trying to cover all their debt. During the festive season, most people use their bonuses to cover their debt, rather than saving it for a rainy day. Local insurance company,  1Life insurance, conducted a survey in which they asked people whether or not they are in debt and if they save. Half participants confessed to only being able to save 5% of their salary each month, while many said that they use credit to make it through the month. The insurance company also revealed that 72% of the participants were in debt.
"This indicates that for every R100 a person earns, R72 goes towards debt, leaving little room for monthly expenses and tangible financial obligations – let alone inflation,” confirmed 1Life.

Trying To Escape

Although there was a decrease in the number of cases of debt in the country, the numbers still remain extremely high. According to a report by Stats SA in June last year, 48 169 summons were issued worth more than R350 million. The stats also report that Gauteng had the highest number of debt cases in the country at 17 603, with Kwa-Zulu Natal in second with 8 800 cases. The report highlights at least 98% of debt cases which took place country wide during 2017. This information was collected in 203 magistrates' courts across the country. Although banks are now making it difficult for people to receive credit, informal money lenders are still on the increase. According to a 2017 report by credit bureau, Compuscan, the high unemployment rate has a negative impact on credit users. "There had been a yearly 8.6% increase of unemployed individuals in the country. This, taking the total up to 6 214 000 as at the end of the first quarter."

Types Of Debt

Some of the most common debt found among South Africans is vehicle asset finance, fixed-term agreements, credit cards and store cards. In 2017, local debt counselling company, Debt Rescue, conducted an internal report on types of debt accumulated in South Africa. Over 10 million South Africans find themselves in debt, with more than 51% of those indebted to be women. According to the report, these are the causes of debt in SA:
  • 94% of debt was caused by personal loans;
  • 84% of debt was due to irresponsible use of credit cards;
  • 76% of debt accumulated as a result of store cards.

Could You Get Your Debt Written Off? 

Do you earn less than R7 500 per month and you have debt less than R50 000?  Your debt maybe written off. This comes after the National Credit Amendment Bill draft which was published in November for public comment. Comments were requested on the Bill until January 15, thereafter public hearings are expected to take place on January 30 and February 1. The National Credit Regulator aims to implement this bill in order to change the lives of many South Africans. This will also impact the banking and financial sectors. According to Business Tech's recent interview with Cliffe Dekker Hofmeyr's Eugene Bester, South Africa's debt situation might change.
"If the National Credit Regulator is of the view that the applicant requires assistance, a single member of the National Credit Tribunal can suspend all qualifying credit agreements in part or in full for a period of 12 months."
Once the 12 month period has been completed and the candidate is still unable to pay the debt, the Tribunal will extinguish all owing debt that was previously agreed upon.

What About Debt Counselling? 

Until the possible Bill is instated, many people turn to debt counselling. The National Credit Act offers the debt counselling option for those who are unable to successfully pay off their debt. Debt counselling refers to a repayment plan which ensures that you can actually pay off your debt. This repayment plan will also be approved and in accordance with the relevant Credit Providers. In order to qualify for a debt counsellor, Debt Rescue explains that,
"You need to be over-indebted as defined by the NCA – that is, you are unable to meet all your financial obligations in a timely manner. This is determined by a debt counsellor and basically means that you can’t repay your minimum monthly installments."
*For more information about debt counselling, click here.