Savings Month: rather save than give in to unsecured debt

Consumers are encouraged to consider suitable savings options instead of giving in to unsecured debt to avoid becoming vulnerable to unforeseen financial hardship in the future. It is true that consumers are struggling with high inflation and interest rates, as well as other challenges such as rolling blackouts, but they are not alone.

The South African Reserve Bank’s Financial Stability Review issued in May affirms that the rising interest rates, ongoing power outages, increasing costs of essential goods and high unemployment rate put immense pressure on families.

However, despite these consumer-related challenges there is a growing demand for unsecured debt as the report highlights a 9% year-on-year expansion during the fourth quarter of 2022, the fastest growth since 2019.

The CreditSmart Financial Services’ 2023 Financial Savvy Survey results reveals that 33% of respondents confirmed they use their credit cards for ‘everyday and everything’ purchases, while 32% said they have no extra money to put away and 24% stated that the unsecured debt cycle is something they just cannot escape.

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More consumers in arrears for unsecured debt

The impact of the current economic situation is also evident in the figures specified by the National Credit Regulator that shows more than 9 million consumers have impaired credit records (with one or more accounts more than three months in arrears) and a 4% plus increase in credit applications compared to previous quarters’ statistics.

“The reality is that many consumers are compelled to spend money they do not have or deplete their savings just to get by,” Wikus Olivier, managing director at CreditSmart Financial Services, says.

“Hats off to the consumers dealing with our current reality as best as they can. Considering the overall picture, National Savings Month, observed in July, should take on a more encouraging tone as organisations need to emphasise the crucial need for consumers to know they are not alone in their situations.

“We should motivate and guide South Africans how to reassess their budgets so that they can identify cost-cutting areas and strive to save even if it means starting with as little as R20. It is vital for individuals to take proactive steps and try to prioritise savings in whichever form, even while facing trying times.”

Olivier has these tips for consumers to push through tough financial times while getting into the habit of becoming resilient and savvy savers:

• You will not “financially win” if you do not have a budget. List your income and expenditure and subtract your expenses from your income. Track your transactions and identify areas of over-spending each month. If you do not grasp your full financial picture, you will not realise when your hard-earned money is being wasted.
• Having a budget in place is vital and ensures that you plan for your expenses. Remember also to eliminate non-essential costs, such as takeaway meals or buying designer outfits. Why not try a no-luxury or no-impulsive spending freeze for the month and say no to anything that is not a necessity and see how much you save.
• Even while dealing with the annoying L-word (load shedding), continue to play your part and manage your electricity expenses. Keep tabs on your actual meter readings and do not rely on given estimates. Why not give the self-service online meter management system a try and make sure you do not pay more than you should. If you are a prepaid customer, buy enough electricity units per single calendar month, preferably at the beginning of each month.
• Review subscriptions, memberships and policies. Cancel subscriptions and memberships you can live without or do not use. You can also consider other alternatives or share costs with family and friends and do not forget to review your insurance policies each year to see where you can save a bit extra.

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• Groceries are expensive and you have to shop smart. Know what items cost and make sure you choose the best price before making buying. Also compare bulk and single-item prices. Also plan your home-made meals by making a shopping list and stick to it. Avoid impulse buys during your outings and ask yourself if you really need it.
• Explore second-hand options instead of buying new items. Think hand-me-downs from family members (especially baby or toddler clothes), online marketplaces or garage sales. By the way, did you know the 25th of August is second-hand wardrobe day? There is no shame in being frugal.
• Find ways to increase your income. Supplement your earnings through freelancing or selling unused (or those still-in-a-good-condition) items online. Tucking a few Rands away each month from your “little bit extra buffer” can be a lifesaver and your safety net during an emergency.
• If boosting your income is not an option, you must try and lower your debt even more. If you are severely stressed and struggle to save money due to your debt obligations, contact your credit providers to negotiate better terms on your instalments and optimise your facilities. You will never win if you do not try. If you did not have any luck with your negotiations with your creditors, or if you are already behind with payments and perhaps staring repossession in the face, seek a sustainable and regulated solution, such as debt counselling.
• Remember that a debt counsellor must be registered and should comply with the National Credit Act. The debt counsellor will negotiate or communicate on your behalf to help you get out of your credit mess and this can give you the opportunity to eliminate your debts one by one.

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“Despite South African households facing challenging economic conditions, National Savings Month serves as an opportunity to encourage consumers to consider suitable savings options rather than resorting to additional unsecured debt. Pushing through tough financial times and developing resilient saving habits may not be easy, but with determination and the right, one-foot-in-front-of-the-other strategies, individuals can improve their future fiscal situations.”