Statistics indicate that only 5% of South African consumers compile a monthly budget and stick to it. The lack of proper budgeting has led to debt crisis and consumers to not keep track of their debts.
South African banks have also increased interest rates, thereby increasing their profits. Unsecured loans can have interest rates of up to 31% per year, and this is much higher than mortgage interest rates, or even car loans. These high interest rates are contributing to a burgeoning credit crisis.
The rising cost of living coupled with South Africa’s troubled history has led to an increased gap in between the rich and poor. This in turn has caused increased credit applications and a high demand for credit in order to keep up with the cost of living in South Africa.
Due to the current high levels of credit in South Africa, there has been a call to curb unsecured loans and reckless credit practices, as well as making lending practices stricter. There have been many instances of deductions going off for loans that have already been paid in full or debts that do not exist. Keeping a stricter eye on both creditors and consumers will stop these incidents from occurring in future.
Debt counseling is on the rise in South Africa, and many consumers are using this service to reset their credit position. With debt counseling, a consumer, their creditors and the counselors come to an agreement regarding new terms and payments plans. It ensures that debts are paid off, but at the same time protects the consumer.
Article written by: Andrea van Tonder 02-2013