The consumer debt crisis in South Africa has been going on for while now. Recent indicators show that there seems to be no slowdown on this front. Consumers still have a huge appetite for loans, even if they aren’t qualifying for it.
The latest figures from the National Credit Regulator’s (NCR) Consumer Credit Market Report and Credit Bureau Monitor show mixed results. On the one hand it seems as though the number of defaulters is decreasing, but on the other, more and more new loans are being granted.
Increases in unsecured debt
There has been a clear increase in unsecured debt granted in the Q2 2019 which could be due to a number of reasons. There have been a number of shocking reports released this year showing the impact of over-indebtedness on consumers.
Unsecured debt is often used as an interim cash flow boost for those once-off expenses. These can occur every few months or a handful of times per year. When unsecured debt is relied on every month just to make it to the next pay date, we call it a debt cycle.
Risks of over-using loans and credit cards
Unsecured debt, such as personal loans, credit cards and store cards, usually has high interest rates and fees. Unsecured debt is riskier than debt secured by a house or car and is therefore more expensive for the consumer. The banks make their money by lending cash to consumers in return for interest rates and other fees.
Due to the high cost you will end up paying a lot more than the original cost of whatever it is you have bought. This is often overlooked and also misunderstood by consumers with little or no financial literacy. Unsecured debt is also generally short term, meaning higher installments.
Rising debt repayments
Due to the profitability of this product for credit providers, unsecured debt is mostly easily available for those with permanent jobs. This poses a risk for those that make impulse buying decisions or feel the pressure to keep up with the Joneses.
More debt means higher debt repayments. If you find yourself struggling to make it through the month without using debt, you may be over-indebted. This means that your income is not enough to cover all debt repayments and living expenses. This forces consumers to use more debt.
If you think you may be over-indebted it is best to speak to a debt counsellor to see if they can assist. Debt counselling can reduce your monthly installments and interest rates through formal negotiations with your creditors.