Many South Africans will celebrate freedom day tomorrow (27 April) while shackled to their debt.
This is according to Sylvia Walker, market development manager at Old Mutual. She added that millions of South Africans who earn good money battle with short-term debt.
The Old Mutual Savings and Investment Monitor found that many breadwinners see debt as unavoidable and this perception is reinforced by rising expenses like transport, food and electricity.
Shepherd Silayi,a debt counselor consultant at Credit Matters, said many people are dependent on loans just to sustain their day-to-day needs.
“Short term loans are appealing because they have lower interest rates but it can become problematic for people who end up taking a loan to pay off another loan,” said Silayi.
Walker added that while we must definitely celebrate our democratic freedom, Freedom Day is also an important opportunity to make sure that people know their financial rights and assert them, while also exercising responsibility over their own financial freedom.
“South Africa’s consumer protection laws are very robust, but many consumers simply aren't aware of the extent of that protection. It’s important that people firstly, know their rights and recourse and secondly, feel empowered to take control of their money,” said Walker.
Born-free generation’s debt
Many of those who grew up free from oppression find themselves enslaved by “now-ism” (an access to easy credit that drives a buy-now-and-pay-later mood).
“It has resulted in a debt-to-income ratio of nearly 80%. In other words, for every rand South Africans spend, 80 cents goes toward servicing their debt,” said Walker.
Silayi added that a lot of debt made by the younger generation is driven by a need to live a certain lifestyle. As a result many of Credit Matters’ younger clients need help consolidating debt caused by loans, credit cards and clothing store accounts.
Don’t drown in debt
To live a debt-free life requires serious action and it starts with drawing up a budget. According to Walker many South Africans simply don’t know exactly how much they earn or how much they spend. You must establish how much money comes into your account each month and where it goes.
She also recommends paying off your most expensive debt first. These include shop cards that charge the highest interest rates. “Once you have cleared your debts and are operating on a cash basis, you can start thinking about investing your money for important goals, making your money work for you, instead of you working for your creditors,” said Walker.