NCR advises consumers to monitor debts

The number of credit active consumers have increased by 0.6% from 19.97 million of the previous quarter to 20.08 million. Yesterday, Nomsa Motshegare, CEO of the National Credit Regulator, said the credit bureau statistics, reported for the quarter ending June 2013, indicate a concerning increase in the levels of impairment. She encouraged consumers to monitor their credit health and to approach their credit providers and debt counsellors for assistance.


Stats showed that consumers classified in good standing decreased by 76,000, to 10.55 million. As a percentage of the total number of credit-active consumers at 52.5%, this reflects a decrease of 0.7% quarter-on-quarter and 1.1% year-on-year.
Paul Slot, president of the Debt Counsellors Association of South Africa, said the main reason many consumers get caught up in debt, is because they use credit to supplement their basic lifestyle.


“Many people also use credit to repay existing debts like [personal] loans and this is how they spiral even deeper into debt. The bulk of their existing credit is then used to pay for lifestyle expenses and other credit lenders,” said Slot.


Ian Wason, CEO of DebtBusters, added that the reasons consumers opt for credit as a solution to their financial woes, is due to rising inflation (electricity, food, petrol etc.) and low salary increases (for nonpublic sector).


Slot added that the problem escalated once consumers use more than 50% of their income, after tax, for lifestyle expenses and debt.


Bad payment track-records
The credit bureau statistics also revealed that the number of consumers with impaired records increased by 189,000 to 9.53 million, from 9.34 million in the previous quarter. As a percentage of the total number of credit-active consumers at 47.5%, this reflects an increase of 0.7% quarter-on-quarter and 1.1% year-on-year.


“South Africans have borrowed more than they can afford. They borrow from Peter to pay Paul, and then when no one else will lend them any more money, they default,” said Wason.


Consumers with impaired records are usually those who have late payments of up to three months. But Slot said that because many people cannot afford to repay their debts they are forced to be part of the 9.34 million group of consumers with impaired records.


“The average South African has two to three credit cards and those who go to credit lenders usually already have between eight to 12 other credit lenders they must repay,” said Slot.


But with stats showing that the number of credit accounts increased from 69.53 million in the previous quarter to 70.73 million, it will take time before many South Africans get themselves out of the red.


Moving forward
To ensure you have a good financial track-record, Wason said you should steer clear of borrowing money in the first place.
“This particularly applies for consumption (i.e. food, or a new pair of jeans). You should try to only borrow ‘good debt’, which is used to fund mortgages or to start a business,” said Wason.


Dealing with debt
Slot added that instead of running away from debt, face it head on by paying off one debt at a time. “Downscale your expenses by buying a cheaper house or car as this releases some affordability money. This has helped many people get out of debt,” said Slot.