How debt creeps up on you

Cape Town - If you spend more than you earn, pretty soon you will be in debt. Funding a certain lifestyle on credit cards, shop accounts and personal loans doesn’t take long to get you into the red.

According to the Credit Act, the onus is on the lender to assess whether the borrower can actually afford the debt repayments. This is not always done scrupulously, especially for small loans.

It must also be said here that a crippling student loan, or having many family members to support could also easily contribute to tipping one into a life of debt. Many South Africans find themselves in this situation – it isn’t only the desire for the good life that can lead to trouble.

There is also social pressure on people to overconsume, and advertisers are very good at implying that your social status is affected by or determined by what you have. Conspicuous consumption is encouraged and few people have the strength of character to resist. Peer pressure is even stronger on younger people.

Card maxed out?

Credit card maxed out? If you have a job and a clean credit record, chances are the credit card company will offer to increase your limit. This might be a short-term solution, but it can spell long-term misery.

Many people miscalculate the actual price of buying things on credit. They see the advertised price, and that sticks in their minds. But they forget about the very real cost of interest payments, administration costs, and insurance. In short, buying something on credit can easily mean you end up paying double for that product, depending on your repayment schedule.

Once the lion’s share of your monthly income goes on servicing your debts, you run out of cash for necessities such as food and petrol and school fees and electricity. That’s when many people start funding these necessities from loans, or buying on account at expensive shops, or start missing debt repayments in order to pay for life’s necessities.

Many people with debt are choosing to ignore it. The problem with doing that is that it doesn’t go away – it only gets bigger. Debt creeps up on you slowly and quietly: if you overspend by just 10% per month, within 10 months, your debt will be equal to a full month’s salary. It doesn’t take much to get there.

What it means to be over-indebted

If you cannot service your debt on time, and still foot the bill for life’s necessities, despite lowering your standard of living, you are considered to be over-indebted. In 2013 Fin24 reported that according to the National Credit Regulator, 7.3 million South Africans were over-indebted, a factor leading to increased emotional stress for many people.

Salary increases have not kept up with the real pace of inflation (just think of how food prices have skyrocketed), increasing the pressure on consumers. At the same time rising unemployment has also turned the screw on the financial welfare of families. A family that is used to having two incomes, will struggle coping on only one.

People also often end up in debt when they incorrectly calculate debt repayments. Many people look at the advertised price of a product and think it affordable – forgetting that there is interest, administration fees, insurances and many other hidden costs which contribute to the final repayment.

The one aspect to debt that cannot be calculated in financial terms is the anxiety it causes. In retrospect, many people will feel that the joy that the fancy new car gave them was completely cancelled out by nights of worry, and a constant feeling of financial doom. In the long run, it simply is never worth it.

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