Consumer debt spirals out of control

2014-11-10 00:00

Record numbers of consumers using credit cards for everyday expenses like groceries

People are paying the creditor who shouts loudest, and maybe leaving the car repayment until the bank takes steps.


CONSUMERS continue to rack up

already sky-high debt to the extent that middle class people now use credit cards to pay for everyday expenses like groceries.

And the credit binge has continued even though salary growth in the private sector has almost stood still in the past five years, while living costs continue to spiral.

There has been a crippling rise in middle-class household costs in the past year, with vegetable prices rising 13%, private transport 8,6%, bread and cereal prices have risen nine percent, there has been an 8,2% average increase in school fees, while water and related services costs have gone up eight percent.

Millions of South Africans are struggling with debt, with up to 2 000 KwaZulu-Natal consumers believed to be applying for debt protection each month.

National applications for debt review have leapt from 7 000 per month in 2012 to 14 617 last month.

Professor Bernadene de Clercq, from the Personal Finance Research Unit at Unisa said individuals were increasingly buying essential items — “even food” — on their credit cards.

New restrictions on personal loans from banks had added further reliance on credit cards and shopping cards, she said.

One Durban debt counsellor told The Witness of a 65-year-old client who has been forced to abandon retirement after juggling funds between six bank credit cards and finally seeking protection.

Neil Roets, CEO of Debt Rescue, said: “Almost half of all credit card users in the country are currently over-extended. It’s scary.

“People are paying the creditor who shouts loudest and maybe leaving the car repayment until the bank takes steps,” he said.

Spokesperson for the National Credit Regulator Lebogang Selibi said October’s applications for debt review were almost 3 000 higher than the year’s monthly average of 11 833, indicating that more and more people are coming to terms with the fact that they cannot handle their debt anymore.

A report by TransUnion released this week showed that the reliance on credit is increasing, “driven predominantly by credit cards”, although it noted that “distressed borrowing” like this was worse in 2008.

“Households are being forced to access more credit to supplement monthly budgets”, and that its figures “marked the 11th straight quarter of credit health deterioration”, the report said. TransUnion’s latest Consumer Financial Vulnerability Index suggested that many consumers don’t realise the debt spiral they are in, saying they viewed their financial situation to be mildly exposed, rather than on the border of very exposed.

TransUnion CEO Geoff Miller said consumers were simply leaving high balances on their credit accounts and paying the accounts off “less frequently”.

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