January debit order disaster deemed on SA consumers

26 January 2015

The festive season comprising excessive holiday spending for many South African consumers caught up in the festive frenzy of gift giving, luxuries and holidaying, leaves them in a financial predicament at the of January year on year, as they continue to owe lump sums of money to creditors they cannot afford to pay off.

In South Africa, employees are paid in the middle of December, and when they return to work early January, they usually have three more weeks to make ends meet before they receive their next paycheque. The cost of school fees, clothing, stationery and other commitments puts further strain on cash strapped consumer’s dire financial circumstances.

Consumers who have reached the end of their credit line will not be able to take out further loans  and those who are cash strapped and able to take out a loan will have to turn to taking out short-term, high-cost, smaller loans, where they continue to watch the interest rates on their debts pile up.

Kelli Knutsen, Marketing Manager of DebtBusters, states, “The end of January is around the corner and consumers have reached the end of their credit line before they have received their January paycheque. January’s month end will lead to a debit order disaster as thousands of consumers with no money will default on payments, consequently pushing them further into debt. Debit orders which bounce at the end of January will have severe implications on the personal finances of consumers currently struggling with debt and who have not yet made special financial arrangements or signed up for debt counselling.”

In addition, DebtBusters has noticed a considerable decline in the credit health of South African consumers. South African consumers have a habit of turning to micro-lenders when financial times get tough. According to Kelli Knutsen, “Consumers earning less than R10, 000 per month have been hit the hardest by micro lenders. Towards the end of 2014, most consumers had a negative disposable income and an overall debt to gross income ratio of 115% before becoming DebtBusters clients. Furthermore, for the first time ever, DebtBusters clients had more unsecured debt (51%) than secured debt when they signed up for debt counselling.”

DebtBusters 3rd Quarter (Q3) of 2014 clients required 108% of their net income to service their debt before they signed up for debt counselling, one of the highest rates on record and up from 67% in 2011. Knutsen goes on to say, “It is evident that clients are spending an increasingly higher portion of their income towards their debt repayments, before they enter into the debt counselling process and that tougher times await.”

“With the Rand weakening, predicted hikes in electricity prices and other financial burdens, it is shaping up to be another terrible financial year for South African Consumers failing to seek financial help. One in every five South African’s are currently facing financial difficulties as the number of credit active consumers with impaired credit records (meaning they are three months or more in arrears on their accounts, have an adverse listing, judgement and or administration order) has risen to 10.5 million, according to the Q3 2014 Credit Bureau Monitor released by the NCR. It is advised that consumes act now by seeking financial help from a Debt Counsellor before it is too late,” states Knutsen.

Summary:

  • Debit orders running at the end of January will have severe implications on the personal finances of consumers currently struggling with debt and who have not yet made special financial arrangements or signed up for debt counselling.
  • DebtBusters 3rd Quarter (Q3) of 2014 clients required 108% of their net income to service their debt prior to signing up for debt counselling, one of the highest rates on record and up from 67% in 2011.
  • One in every five South African’s are currently facing financial difficulties as the number of credit active consumers with impaired credit records (meaning they are three months or more in arrears on their accounts, have an adverse listing, judgement and or administration order) has risen to 10.5 million, according to the Q3 2014 Credit Bureau Monitor released by the NCR.

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