Almost half of all credit-active consumers in South Africa are in arrears. This is according to the findings of the latest Experian Consumer Default Index (CDI). It seems that consumers are using more and more debt to pay for their lifestyles and this is starting to catch up with them.
Consumers end up in a repetitive debt cycle whereby they use new debts to pay off existing debts. Last year we saw a big jump in number of credit-active consumers that were defaulting on their debt repayments. David Coleman, chief data officer at Experian SA explains:
The impact of this can be seen in the rise in the percentage of total credit active consumers that are classified as impaired or in default, from 43.89% in March 2018 to 45.45% in June 2018.
What Can Consumers Do To Sort Out Their Debt Problems?
Consumers with a fair amount of debt have a few options that will assist them to manage it better. The high debt repayments are usually the main issue. Consumers also find it difficult to manage debit orders and payments to a large number of credit providers.
The two main options come in the form of debt consolidation:
Debt Consolidation Loan
A consolidation loan is basically a large personal loan that is used to pay off smaller accounts. The consumer is then left with only one debt repayment and a lower instalment. Although most consumers view this as the best solution for them, the reality is that it is quite difficult to qualify for this option.
Credit providers will generally look at three main factors in determining whether you qualify for a consolidation loan. There are a high credit score, little to no arrears on accounts and a high debt affordability (income – current expenses).
Debt counselling was designed to get over-indebted consumers out of debt. A debt counsellor will formally negotiate with all credit providers to reduce monthly instalments and interest rates. The reduced interest rates are a fantastic benefit as this will save consumers lots of money during the process.
Consumers will also receive legal protection from their credit providers. The process is flexible giving consumers the option to increase repayments to clear their debt off in a short time period. Debt counseling also involves some fees, but these are regulated by the National Credit Regulator.
To conclude, both of these consolidation options can work for someone with debt. It just depends on what you qualify for and what you can afford at the end of the day.
For more information contact a debt counsellor or chat to your bank to see what you would qualify for.