Leading up to 2020 we saw strong signs of a struggling South African economy. Government debt was up, unemployment levels had risen and consumers were struggling to repay debts.

Stats from the “big 5” SA banks all pointed in the same direction. Consumers were battling to repay their debt on all levels. Regardless of how each bank defined their bad debt book, all showed increases in monetary value.

The lockdown, although necessary, had a devastating effect on SA’s economy.

Back in March, when the government announced a national lockdown, nobody could predict the length, outcome or consequences. How would this lockdown affect an already ailing economy?

Many forecasted and speculated the outcomes. When the Q2 GDP figures were released a few weeks ago, the large drop was a shock to most. StatsSA announced that the GDP had dropped by 50% in the quarter.

How will Covid-19 and the SA lockdown affected the banks bad debt numbers?

Due to less economic activity, mass retrenchments, salary cuts and low spend in the overall economy, many consumer incomes were affected.
When incomes get reduced and budgets are already stretched, one of two things can happen to those with debt.

a. Consumers cannot afford to repay their current debts
b. Consumers go out to look for more debts to cover any shortfall in the their budgets

The banks, with increasing loss rates due to missed repayments, will look at possibly tighten their lending criteria.

Without easy access to further debt and limited increases in credit card or bank overdrafts, many more consumers would start missing debt repayments. This would increase bank bad debt figures even further.

What can consumers who are struggling to get new debt or pay current debts do?

At Vantage Debt Management, we always try and see if there is a way to work on the consumers budget and see if there are quick and easy ways to free up cash flow.

If basic living expenses are already strained, there may not be many options. Most of the banks have already extended payments holidays where they could and consumers should be now catching up on those.

Debt consolidation is always an option for those with many different debts that take up most of their salaries. There are two main consolidation options in the market:

1. A consolidation loan is large personal loan that is given out by the banks. This loan is then used to pay off smaller debts resulting in just one loan to repay instead of several.
2. Debt counselling is a process for over-indebted consumers. Installments are consolidated and reduced, along with interest rates

To see which option would be best for you, speak to our experts. Vantage will offer a free financial assessment whereby we look at your credit reports, analyze your budget and can make solid recommendations that could save you thousands of Rands.

{Source: MoneyWeb, BusinessTech}