South Africans Struggling to Meet Debt Repayments as Rules Change

In June 2016, close to75% of the average South African’s annual income was spent on debt repayment. As one of the world’s heaviest credit users – and with an economy in turmoil – it’s little wonder than many South African’s struggles to keep up with loan repayments, making the country home to the world’s most consumer debt in 2015.

Times are as uncertain as ever for South Africa’s many millions of borrowers. While some take on “good” loans for investments such as education, emergencies, and property, others use credit unwisely, spending the finance they source on holidays and shopping sprees. Others still use credit simply to scrape by day-to-day, using irresponsible lenders and finding themselves unable to meet repayments as a result.

Whatever the factors behind the population’s borrowing, most making use of finance are very worried about what the future may have in store.

Rate hikes
In June last year, many central South African banks increased their rates, confronting many of the nation’s borrowers with higher regular repayments which sent their already uncertain finances plunging into unmanageability and even debt spirals.

While the consequences for many households could be dire, there are also wider implications to worry about. Already sluggish, many fear that these rate hikes could slow the economy even further, as South Africans find themselves with less and less disposable income, in turn affecting the already tricky job market.

Is education the answer?
Officials and observers have long been calling for better financial education in South Africa, which ranks as one of the world’s least financially literate, in a bid to prevent consumers finding themselves with unmanageable debt – and to help the population make shrewder choices about how they use their money. Yet despite years of Government initiatives and educational resources from some of the country’s leading lenders including Wonga.co.za, the lack of financial acumen and changing goalposts are still making repayment and financial stability distant prospects for many of the country’s borrowers.

Debt decreases
It’s not all entirely bad news. Despite six months of rate hikes, in early 2017 it was revealed that South African consumer debt spending was declining. In the third quarter of 2016, the average household debt-to-disposable income ration dropped to 74% (the country’s all-time high of 878% was measured in the first quarter of 2008).

Debt levels may still be high, but a combination of more careful borrowing (perhaps thanks to improving standards of financial literacy) and increasingly stringent lending guidelines, have caused a drop in household debt.

Future worries
A continuation of this trend is much needed as South Africans face an uncertain financial future, with continuing petrol price rises already hitting the nation’s pockets and proposed increases in income tax announced in President Zuma’s February State of the Nation address.

Can debt-laden South Africans weather future financial demands and uncertainty? Would better financial education help? What needs to be done to fix the nation’s debt problem? Have your say below.

About the Author: Stephen G Davies MSc writes about world news, finance, technology, business and covers product reviews for global firms. Stephen has written for digital agencies, e-zines and maintains a passion for updating a number of his own blogs. Writer by day, reader by night, Stephen enjoys being aware of world events and affairs and is passionate about related topics.