How Much Is Too Much Debt?

too much debt

It is quite common for South African adults earning a decent salary to be the prime targets for hungry credit providers. Whether it’s by SMS, email or banners in the stories you read online, you will be surprised how many adverts for loans the average South African gets per day. The reason for this is simple – credit providers make money by lending out money and getting consumers into debt. They charge you interest and fees in order to borrow. The more the lend out, the more money they can make which has resulted in large marketing strategies in recent years.

South Africans Are Suckers For Loan Adverts

For many people it is easy to ignore these “Get R100,000 NOW!” ads on your PC or cellphone, but for others these ads might start becoming rather appealing when times are tough. It is no surprise that there is a large target market for South African credit providers. According to the World Bank, South Africans are the world’s most avid borrowers. A World Bank report also found that almost 50% of South Africans that have debt are in more than three months arrears on one or more accounts.

So how do we prevent becoming a victim of too much debt? What steps can we take today which can help us prevent becoming over-indebted? If debt has already gotten the better of us, what can we do to rectify it or at least make it more manageable?

Consumers use debt for many different reasons. Debt can be used to buy assets such as a home or a car. It can also be used to renovate your house or go on a fancy holiday. It can be used to buy the latest iPhone  or the latest fashion piece. All of these might seem like items of status or privilege, and perhaps they are, but it is scary to know that a large proportion of South Africans use debt just to get by. They use debt in the form of loans or credit cards just to pay rent or to buy groceries. They use debt to pay for school fees and basic clothing.

What Does Over-Indebted Mean?

Over-indebted refers to a situation whereby a consumers monthly income is not enough to cover all of their living expenses as well as their debt costs. The result of this is missing debt repayments or using new debt to pay off current debt. It is tough to get out of this situation and often results in a bad spiral of events.

One of the biggest reasons that people become over-indebted is that they live beyond their means. It is easy to spend money on unnecessary items such as eating out or the latest fashion. People stay in apartments and drive cars that they can’t afford. They go on holidays that cost an arm and a leg. Often these consumers are trying to portray a certain lifestyle or status.

How Can You Prevent Becoming Over-Indebted?

  • Learn to use a realistic budget
  • Cut down on luxurious expenses
  • Only use debt when you know you can easily afford the repayments
  • Rather save up and buy for cash than use debt if you can
  • Do research and shop around before buying expensive items
  • Ask yourself if you really need the item
  • Pay off smaller debts in full
  • Aim to save each and every month, even if it’s R100

Debt usually becomes a problem when you run out of money before the end of the month. Using a credit card or overdraft for the last few days of the month is a good signal that you may be over-spending. You should aim for your debt repayments to not exceed half of your salary.

Who Can I Talk To About My Debt Problem?

It is worth giving your bank a call or going in to chat to a consultant. See if they have any advice or debt solutions that can help you. If you have financial advisor, you try ask them for some tips and advice. If you are experiencing debt difficulties you should also contact a debt counsellor. A debt counsellor will draw your credit report and assess your debt situation. They can then offer you some sort of debt solution depending on the results of the assessment. It is always important to be 100% honest in any debt or credit assessment. It is also important to check your credit report at least once a year to make sure that all information captured by the bureaus is correct.


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