The appetite for credit among South Africans continues to grow as they are driven by increasing lifestyle costs and the convenience of fulfilling wants and desires instantly. However, this increased reliance on credit can have a substantial impact, particularly considering stagnant or minimal salary growth. Moreover, with high credit utilisation, consumers are jeopardising their future creditworthiness and ability to access credit. On top of this, becomes an increased difficulty in repaying the higher instalments.

Why Do People Go Into Debt?

There are a number of reasons why consumers, especially South African consumers, struggle with debt or a high credit reliance. Firstly, many consumers in South Africa struggle with low, stagnant wages and salaries, as well as high unemployment levels – this makes it difficult for these individuals to cover their basic living expenses. Also, there is often only one member in the household earning an income due to the high unemployment rate. This may force them to turn towards credit as a form of bridging that gap in their salaries and supporting dependants

Secondly, overspending and impulse buying is another leading cause of why consumers go into debt. Consumers with poor financial habits like overspending or lack of budgeting can quickly accumulate debt. Living above their means increases their credit reliance as the consumer becomes used to living a certain lifestyle. 

Thirdly, consumers are most likely to turn to credit in the case of an unexpected emergency or medical expense. This can create a significant financial burden for the consumer as they are financing through some form of credit, usually a personal loan or credit card. 

Fourthly, financial institutions constantly call consumers to extend credit to them. With consumers feeling financial pressure, many are likely to accept the offer of the credit extended to them due to desperation

What Is The True Cost Of Debt? 

Generally, the true cost of debt extends further than the principal loan amount. On the principal loan amount required by the consumer, the bank or credit provider, will charge interest on the loan. The interest rate can vary depending on the loan type that the consumer applies for as well as the borrowers credit score and risk level. There are also initiation and administration fees involved when taking a new loan. Additionally, financial institutions can charge additional fees and penalties on the loan amount. These fees and penalties can be charged if the consumer has missed a payment or violated the contractual obligation. Subsequently, these fees and penalties can further inflate the debt burden on the consumer. 

How Can Debt Affect Individuals

Moreover, beyond the financial implications that debt may have; it can create a significant emotional toll on a consumer. Constantly worrying about debt repayments, collection calls from collection agencies or the feeling of being trapped in a debt cycle can cause the consumer to feel extremely pressured, increased stress levels, anxiety and strain on personal relationships with loved ones. Additionally, the increased financial pressure can affect their employment and create physical health implications.

What Does This Mean For The Family?

Debt can have a significant impact on families and affect various aspects of their lives. As financial strain starts to arise due high levels of debt, it can consume a large portion of the families income and limit their ability to meet their families essential needs. In addition, the increased financial strain derived from the high levels of debt, can place great emotional strain on the family, especially on parents and breadwinners. Subsequently, this can affect their moods, how they interact and their happiness levels. Additionally, they could also feel like a failure or even isolated from their family and friends. Moreover, this can have a significant impact on their mental health and overall well-being. All of these are elevated when a consumer fails to maintain their debt repayments.

What Can Be Done About The Debt? 

There are a number of budgeting and savings tools available to consumers that are currently under financial stress. With some time, research and dedication, you are able to find a budgeting and savings tool that can work for you.For example, there is a common and widely used budget tool called the 50/30/20 budget split. 

With consumers that are over-indebted, a more serious and formal intervention is required. Over-indebted refers to a situation whereby consumers are unable to repay their debt repayments and cover their living expenses. This is where a formal solution such as debt counselling can assist the consumer in reducing the burden of debt. 

Since the inception of debt counselling in 2007 by the National Credit Act of South Africa, it has assisted hundreds of thousands consumers by reducing their monthly instalments and interest rates to a more affordable and manageable level. Moreover, this can help the consumer gain more financial control and reduce their overall financial pressure.