Half of South Africa’s households are in debt – and as the country’s economy continues to crumble, staying afloat is essential, says Charnel Collins, the CEO of the National Debt Advisors (NDA).
“The rise in interest rates on a country already in debt is devastating,” Collins said.
She added that the latest rate hike would affect consumers’ overall financial well-being and all types of debt — from credit card repayments to home loan repayments.
On March 30, the South African Reserve Bank (SARB) announced a surprise rate hike of 50 basis points, raising the primary rate to 11.25%.
The hike was the ninth consecutive hike since the start of the interest rate cycle in November 2021. Interest rates are currently at their highest since the year of the global financial crisis.
Collins said of the dire consequences of the latest rate hike: “In April 2022 consumers with a bond loan of R1,500,000 for 25 years were paying R11,330 a month – no down payment. As of April 2023, they can now expect to pay almost R3,644 more, bringing monthly installments to R14,974.”
The CEO said that, to make matters worse, the country’s inflation rate recently rose to 7% for the first time in four months, forcing consumers to pay more for an average basket of goods.
According to Collins, the mounting debt to keep the lights on and food on the table is especially detrimental to families’ financial and emotional tension.
Statistics South Africa’s most recent general household survey found that 51% of South African parents had experienced financial pressures that affected family life.
She said understanding the difference between good and bad debt is fundamental for households.
With the introduction of readily available credit cards and personal loans, credit has become increasingly accessible, Collins said.
“While credit can be a useful tool, not all debt is created equal. According to Eighty20’s latest credit stress report for the fourth quarter of 2022, the current balance of all loans is up 3.8% from the previous quarter, with increases across all loan products.”
“Data from the report showed that the second largest percentage increase came from credit card bills, up 7.2%. “This is a clear indication that taking on too high interest rates can quickly become unmanageable, leading to a debt cycle that is difficult to break,” she added.
Collin’s views reflect a growing reality for households in South Africa, which have reported a slew of economic problems in recent months.
Financial services firm PwC’s most recent Economic Outlook states that despite disruptions in local and global supply chains, consumers in the country continue to be hampered by, among other things, rising prices for everyday goods.
South African respondents to the group’s most recent Global Consumer Insights Survey Pulse (GCIS) found that supply chain disruptions had significantly affected the price of household items, lengthened queues in stores and resulted in some items being out of stock. stock goods.
This has forced many to look for different ways to put food on the table, including switching to credit or completely overhauling their shopping habits.
Eighty20’s Credit Stress Report for the fourth quarter of 2022 showed that there is a growing consumer appetite for credit. This despite persistently high inflation and rising interest rates. The group reported more than 800,000 new entrants to the credit market, the highest number since the pandemic.
The latest Nielsen Global Outlook report, meanwhile, found that consumers are snapping up discounts, chasing promotions, buying in bulk, and taking advantage of loyalty programs at a record pace — all to lower the ultimate price tag of their shopping spree.
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