There’s a lesson in debt hangover

It’s no surprise that four out of five South African households saw their income reduced by the Covid-19 lockdown which shut down large swathes of the economy.

What is interesting is that, according to the TransUnion Financial Hardship Survey, one in five households felt no impact in what has been called the biggest financial crisis in this country since the Great Depression of the ’30s.

However, for those who were struggling already to make ends meet, the lockdowns were an immense blow – and many households had to increase their levels of debt to cope, or were forced to default on debt repayments.

It is true that many finance institutions stepped up at the time of crisis, granting many of their debtors payment holidays.

However, this provided only temporary relief – and may have actually made the situation worse for many people because any capital sums owed continued to accumulate interest.

This means people are more indebted than before and will take longer to clear the amounts they owe.

And therein lies the rub. South Africa is a consumer society. We are people who live and often party for today and let tomorrow take care of itself. We live by mainlining credit and, like any addiction, there will come a time when the hangover occurs.

So, perhaps the crisis brought on by the coronavirus might provide us with the opportunity to step back and assess how we live.

It could give us the nudge we need to go “cold turkey” off our addiction to credit – and our addiction to expensive, shiny things.

The problem with breaking the debt cycle, however, is that interest rates are lower than at any time since the fuel crisis of 1973 … so borrowing money has never been cheaper.

We should heed the Covid-19 lesson: you should always be prepared for a rainy day.

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