Debt spikes in the New Year

2011-01-08 20:36

More people have borrowed and overspent themselves into deep debt trouble during the festive season, say debt counsellors.

André Snyman, the deputy president of the Debt Counsellors Association of South Africa (DCASA), says that various debt counsellors and debt management organisations have reported that the number of people who approached them during December spiked from the 7 000 per month usually recorded.

“The festive season has resulted in a 7% to 12% increase in the number of people who have applied for debt review last month, compared to those at the same time in 2009,” estimates Snyman, who also runs debt counselling group Consumer Assist.

The National Credit Act makes provision for those in debt to contact a debt counsellor, who will assist them in mediating with creditors and devising a repayment plan.

Since its implementation in 2007, 221 000 people have applied for debt review.

Lorna Botha, a debt counsellor at Easy Debt Solutions, says business is often slow during December but spikes in January.

Some debt counsellors are already witnessing this increase.

Roger Brown, chief executive of Credit Matters, says they have experienced a 30% increase in applications in the first week of this year.

This amounts to 200 applications more than they receive in a normal month.

Willem van Eeden of Inclusive Debt Counselling says they received 25 applications in the first week of January, as compared to the average weekly 15.

Rajeen Devpruth, manager for research and statistics at the National Credit Regulator (NCR), confirms that, based on statistics available in September, there has been an increase in the amount that consumers have been borrowing.

The increase is due to more people becoming credit active, says Snyman, and increased borrowing is linked to the low interest rate.

This enables people to afford to borrow more than they would when interest rates are higher.

Devpruth says that banks were more willing to lend money last year and consumers were more willing to apply for credit, making more money available for spending during the festive season.

Sibongile Fihla of Credit Clear Remedy says that often consumers fall into financial difficulty in January because they fail to make financial provisions for school fees, uniforms and supplies. This forces them to take out loans.

Brown says another contributor to the January spike in applications is that some people only apply for debt counselling in January, when the extent of their debt may already be very serious.

The NCR says that more than half of credit-active consumers are in good standing.

But Snyman raised the concern that the number of consumers who have missed three or more payments has increased from 9.7 million in 2009, to 10 million last year.

Snyman attributes the rise in those seeking out debt counselling to an initiative by the NCR, the DCASA and the National Debt Mediation Association (NDMA) to make consumers aware of their options in resolving debt crises.

If you find yourself in debt, the NDMA recommends you budget according to what you earn, and control your spending.

Snyman suggests that you make a budget on a daily, weekly, monthly and yearly basis.

This should cover everything from bread and milk to school fees and TV licences, he says.

Also avoid borrowing money to pay what you owe, as this will only create a spiral of debt.

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