South Africans are paying 76% of their income on debt – expert

2014-04-22 14:57

The appetite for debt among South Africans has grown even stronger amid low interest rates for the past five years, an expert has said.

Momentum head of financial wellness Estelle Scholtz-Mare said today most South Africans had not taken advantage of the low interest rates to reduce their exposure to debt and increase their savings.

“South Africans are still paying 76% of their income on debt repayment, which does not augur well for savings,” Scholtz-Mare said.

“Living so close to the edge of their incomes means that they are highly vulnerable to the negative impact that increasing interest rates will have on their budgets.”

She said the most troubling aspect of South Africans’ overreliance on credit was that they had become dependent on expensive personal loans to fund their lifestyles.

Scholtz-Mare said the demand for personal loans skyrocketed after banks tightened their lending practices after the 2008 credit crunch.

Statistics show that the biggest demand has come from people who earn in excess of R15 000 per month, she said.

“If you add this to increasing food inflation running at about 5% or 6% – and increasing fuel and utilities costs – then you can say that many of us are teetering on the edge of insolvency,” she said.

“While people know they must save – and indeed list retirement savings as a priority – they fail to implement a structured and dedicated plan.”

Scholtz-Mare said that according to statistics from the National Credit Regulator, almost R160 billion in unsecured credit was outstanding.

From this, 24% of the loans were in arrears for 30 days or more and 16% of borrowers had missed payments for 90 days or more.

She said in research done by Momentum people said they had been side-tracked by immediate financial needs that were not always necessities.

People acknowledged that their debt commitments ate up the majority of their incomes which, in turn, left them with very little savings, she said.

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