Households are falling behind on payments as many pile up debt just to get by

Many households have used debt to get by because they don't have savings.
Many households have used debt to get by because they don't have savings.
  • Old Mutual released its annual savings and investment monitor on Thursday.
  • With many households barely having enough savings to cover their living expenses for a month, many turned into unsecured debt to cope with reduced incomes.
  • Already a third of those say that have started falling behind on personal loans from banks, microlenders, and family.
  • Debt management company DebtBusters says now that most banks' repayment holidays have ended, there is an increase in people committing to debt counselling.

As South Africa's lockdown drags on, some find themselves moving to survival mode because they remain unsure of what's coming next. A survey done by Old Mutual between late May and June paints a picture of households whose financial circumstances and confidence failed to catch what was supposed to be a glimmer of hope when South Africa moved to lockdown Level 3, allowing more economic activities to resume.

Instead, by late May to 23 June, when Old Mutual conducted online interviews with about 1 500 households, 57% reported they were still earning less than they earned in February 2020, before the lockdown began. 

The impact of lockdown - leaving people to cope with much less than they were used to - has been documented in many other surveys.

Credit bureau Transunion, which has been polling consumers periodically since the lockdown began, keeps getting more job loss reports from surveyed individuals. Its latest poll, conducted in the first week of July, shows that 17% of those reporting reduced income said they'd lost their jobs, up from 10% when these surveys began in April.

Old Mutual's report showed that almost half of the people earning between R5 000 and R9 900 per month lost at least 50% of their income.

To try and make ends meet, they are increasing their debt if they can get credit from financial institutions, turning to family and friends for loans, deferring some household bills and cashing out investments and savings if they had any.

Unsecured lending acceleration 

"Personal loans from a financial institution, are dramatically up, just over double what it was last year," said Old Mutual's research manager, Lynette Nicolson.

Nicolson said about half of the people surveyed turned to overdraft and revolving credit facilities, and 2 in 5 borrowed from family and friends on an ad-hoc basis. But what is worrying about this borrowing is that many are struggling to repay. Roughly a third of those who've taken out personal loans from financial institutions, microlenders and family reported that they had started falling behind with their repayments or were no longer able to meet these at all.

South African banks are yet to report their financial performance to the end of June. But the extent to which their customers are no longer able to meet their debt obligations could be masked by the fact that many customers applied for the general three-month repayment relief that banks offered up to the end of June.

At the time of conducting Old Mutual's survey, roughly a third of the indebted consumers had applied or explored the option of a payment holiday or other forms of debt relief, with majority successfully granted one.

People start signing up for debt counselling

DebtBusters’ chief operating officer, Benay Sager, said the company, which offers debt management and counselling, said while they saw a rapid increase in inquiries since the lockdown began, there's definitely been a change in July, with 67% more debt management inquiries after most of these payment holidays came to an end.

"We've definitely seen a change in terms of volumes compared to last month and compared to the same month last year. It does seem like the ending of the holiday has made some people a lot more aware that they need other forms of help."

Sager said what's also different about July is that while between April and June people made inquiries, not many were signing up for debt management. In July, more people started committing to debt counselling.

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