The cost-of-living struggle is affecting consumer debt repayments as consumers are pushed into financial distress by high food and fuel prices, as well as high interest rates. Consumers are taking home less income but paying a lot more for the same goods compared to a year ago while they also have to deal with expensive debt as interest rates and inflation take their toll.
South Africa’s annual consumer price inflation increased to 6.5% in May, the highest since January 2017 when it was 6.6%. Transport and food made up just over half of the annual rate.
In May 2021, consumers paid R729 to fill a 45-liter tank with petrol and R1,134 to fill a 70-litre tank with diesel. In May 2022 it cost R1 065 to fill up that same tank with petrol and R1,656 to fill the tank with diesel. Transport costs increased by almost 16%. During the past year, the price of the basic food basket also increased by almost 12%, with sunflower oil used for cooking increasing by almost 40%.
ALSO READ: South Africans taking on more unsecured debt, paying off secured credit faster
Interest rates are also increasing, with three more expected rate hikes this year which means that the cost of consumer debt repayments are also increasing. In addition, South Africa is expected to see incredibly constrained economic conditions throughout the rest of 2022 and increasingly financially distressed households.
“The cumulative impact of all these factors on household income is immense. One of the biggest burdens on consumer finances is ever-increasing energy costs, which have a direct impact on the price of general goods and services. Add to that the impact of load shedding, failing municipal infrastructure, depressed business confidence and supply chain shocks and you have a rather distressing outlook for an already ailing South African consumer,” says Tej Desai, CEO of Alefbet Collections and Recoveries.
“People are taking home less income and paying a lot more for the same goods than they were a year ago, while increasing interest rates will also increase their debt servicing costs. Over-indebted consumers, especially those with a greater proportion of unsecured credit, are likely to become more indebted as their debt servicing costs shoot up, alongside living costs.”
ALSO READ: Consumers warned about getting trapped in debt spiral
Desai says the most important thing to do now is for indebted consumers to take a proactive and disciplined approach to paying off their higher interest-bearing debt and proactively engage with their credit providers if they find themselves in difficulty and unable to service their monthly debt repayments.
“Our data over the last six months shows that the ability of consumers to pay is deteriorating as we see a decreasing trend in the number of payers and average monthly repayments. Simultaneously, we are seeing an uptick in call/contact avoidance, as borrowers fear the implications of being in financial distress.”
However, Desai says, it is important for consumers to know that creditors are not oblivious to the impact of the pandemic and prevailing economic conditions. We see a shift in creditors wanting to preserve the customer relationship, moving from a posture of “when can you pay” to “how can we help you”.
“Creditors are open to engaging and finding opportunities to renegotiate payment and credit terms where there is genuine financial distress and where borrowers demonstrated a consistent willingness to pay.”
He says as debt collection agents, they play an integral role in facilitating these discussions and negotiations on behalf of credit providers.
“South Africa’s credit providers are ready to restructure debt with a more customer-centric, empathetic approach given the unprecedented circumstances we find ourselves in.”
ALSO READ: 5 Steps to make debt work for you, and not against you
Indebted consumers should use this opportunity to reach out proactively and negotiate before they default and find themselves caught up in costly and stressful legal collections process:
Download our app and read this and other great stories on the move. Available for Android and iOS.