Fadia Salie, Fin24 on Business Day Live
THE year ahead looks set to be a dire one for consumers, debt experts warned on Monday.
Referring to increasing cost pressures on already strained consumers, DebtSafe MD Wikus Olivier said their only means of survival would be to adopt a simpler lifestyle.
Over and above the usual factors that affected consumers’ pockets, such as the fuel and electricity price hikes, SA was experiencing a severe drought that was adding to food price pressures, Debt Rescue CEO Neil Roets said .
He also warned that there was likely to be a few interest rate hikes in 2016.
Mr Roets said consumers would also feel the brunt of weaker rand as its effect on imported goods filtered through.
Pointing to the already high unemployment rate of 25.5% and the addition of 2015’s matriculants to the job seeker pool, Mr Roets said the outlook for 2016 "is indeed dire".
"We feel that 2016 is going to be a very tough year for consumers."
Mr Olivier said January, being a notoriously long month with everybody’s finances stretched to breaking point, would hit most consumers particularly hard.
The weakening rand and severe drought would have increase the cost of living and people were likely to turn to credit to get by, he said.
Mr Olivier said research done by DebtSafe at the beginning of 2015 to determine the effect of consumer spending during December on savings and debt repayment had provided a bleak picture.
More than 50% of the respondents indicated that they had difficulty servicing all their debt repayments during the month of January, with 13% of those saying they could not make any payment whatsoever. Forty-one percent indicated they had overspent on their credit cards during December.
What was worrying was that more than half of the respondents indicated that they did not have a budget or financial plan.
"There is no doubt that more and more consumers will fall behind on debt repayments this coming year," warned Mr Olivier.
Leigh Nooy of Summit Financial Services said although an early payday in December felt great for most consumers, many lost sight of the fact that their December pay had to last extra long before the next payday.
To make matters worse, there were many additional expenses in January, including school fees, stationery, and uniforms, and annual premium increases.
"If you don’t have money ready in your savings account, January expenses can lead to emergency debt, which is the number one catalyst for over-indebtedness in SA," Ms Nooy said.
Summit’s Friedl Kreuser said the company had already seen consumers from both the private and public sector applying for debt review.
These consumers, skewed to males between 31 and 45 years of age and earning between R7,000 and R15,000 a month, typically have about 11 accounts, mostly unsecured debt, with a debt-to-net-income ratio of about 85% (ie they spend 85% of their net income on debt instalments, or would if they were keeping their payments up to date).
Mr Roets has seen a similar trend at Debt Rescue, with a dramatic year-on-year increase of 182% in the number of applications for debt review between 2014 and 2015.
Debt Rescue’s consumer profile differs from that of Summit, with the company seeing a staggering 214% growth in numbers in people aged 21-25 applying for debt review.
"This is indicative that our youth are not financially educated with respect to handling debt and tend to overspend, usually on luxuries. The ratio of female to male applicants has shown that more males are applying for debt review, but not by much," said Mr Roets.
"Although debt counselling is hardly the only solution, for those who qualify, we have been able to reduce interest rates from 24% to 3.6% on average, which goes a long way to reducing their debt instalments without stretching the repayment term too much," said Mr Kreuser.
"Sadly, the number of clients applying for debt counselling doesn’t seem to be decreasing, but at least with new case law and amendments to the National Credit Act, the debt counselling process is getting smoother and more reliable for those consumers who do apply."
Mr Olivier urged consumers who were finding it increasingly difficult to make timely debt repayments to speak to a debt counsellor before falling behind on repayments.
Consumers are considered over-indebted when they are in arrears by three months or more on at least one of their accounts.