Millions surviving by borrowing money to pay debts, report confirms

The latest credit stress report confirms that borrowing money to pay their debts has become a lifeline for millions of South Africans, leaving them stuck in a debt spiral caused by a relentless onslaught of economic forces.

Disturbing results from the latest Eighty20/XDS Credit Stress Report for the fourth quarter of 2022 show an increasing appetite for credit among consumers, with more than 800 000 new entrants into the credit market, the highest since the Covid-19 pandemic.

This figure came with a surging number of loans, notably credit card, vehicle financing and home loans newly in default. The previous year this number was 600 000, signalling a deepening debt spiral among over 18 million consumers, more than one-third of the population.

It is even more worrying that these new entrants took out R9.3 billion in new loan value, the highest in more than 2 years, nearly 10% more than last year. There has also been a significant surge in credit card balances with total loan balances increasing by R25 billion (12%) year-on-year, bringing the total credit active population to 18.7 million with total loan balances of a whopping R2.3 trillion.

“These statistics show that South Africans are increasingly turning to credit to survive the relentless onslaught of cost-of-living increases that seemingly have no end in sight,” says Neil Roets, CEO of Debt Rescue.  

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Inflation increased again

Against this backdrop of desperation, the news from Statistics SA that annual consumer price inflation shot up to 7.0% in February 2023 from 6.9% in January due to food price inflation climbing even higher, is devastating, he says.

“It is significant that the prices of food and non-alcoholic beverages climbed by a whopping 13.6% year-on-year and contributed 2.3 percentage points to the total CPI annual rate of 7.0%. This highlights the plight of consumers whose very survival depends heavily on these basic goods.”

Inflation is till outside the Reserve Bank’s inflation target range of between 3 and 6% since May last year although there has been a sliding decrease since November 2022. The recent increase caught everyone off guard, dashing hopes of economic stability in the near future.

“During National Credit Education Month in March, it is important to highlight the most significant right consumers should demand: a stable economy where all South Africans can prosper and a stop to the relentless cost-of-living increases that decimate people’s lives. The sad fact is that nobody seems to be listening anymore.”

South Africans fight a daily battle to simply survive in the face of a cost-of-living catastrophe the likes of which we have never seen before, Roets says.

“The unprecedented energy crisis, coupled with relentless petrol price and interest rate hikes, not to mention the constant price increases of the very staple foods most necessary for survival, pushed consumers’ backs against the wall and left them with nowhere else to turn but a bottomless pit of debt.”

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What about those who cannot even afford credit?

He says the elephant in the room is, of course, the many millions more who are not credit compliant and are simply hanging on by their fingernails.

According to the latest statistics from the Pietermaritzburg Economic Justice and Dignity group (PMEJD), an alarming percentage – more than half (55.5%) of South Africa’s total population, amounting to 30.4 million people – live below the country’s upper-bound poverty line of R1,417 per month.

Add to this the figure of more than a quarter (25.2% – or 13.8 million) living below the food poverty line of R663 and you can see the magnitude of the problem.

It goes without saying that consumers can simply not afford any more price shocks and considering the impending 18.65% increase to electricity rates in April, the expected repo rate hike at the end of March and the anticipated petrol price hike next month, it is clear that the country is at a tipping point and heading for a catastrophe the likes of which we have not seen before, he says.

However, Roets says it is encouraging that, while consumers have more debt per credit agreement, they are seeking help sooner when defaulting on their debt.

“My advice to those who fall into this trap is to seek help from a registered debt counsellor who can assist them to manage their financial predicament. This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness.”