We are drowning in debt

A survey of consumer debt has come to the shock conclusion that South Africans are trapped in the worst debt crisis yet, with more than 6000 new debt counselling applications a month.

Debt counselling agencies are swamped with 276601 applications for debt reviews - a last-ditch intervention to allow consumers to restructure debt to avoid blacklisting or repossession. The applications have increased from 27573 in September 2008.

The Consumer Debt report, compiled by debt counselling agency Credit Matters, said more than 8.9million people are trapped in a debt nightmare.

Debt counsellors estimated that more than 50% of them could rid themselves of their financial woes - in about 20 years.

The report, to be released next month, is based on interviews with financial industry experts, debt counsellors, media reports and information from Statistics SA and the National Credit Regulator (NCR).

Seven fuel hikes since January and soaring food, electricity and water prices are taking their toll on consumers - from the poorest to middle-class property owners and even businesses.

The survey also found:

• South Africans pay about 75% of their salaries to service debt.
• Economists think 400000 to 500000 jobs could be lost in what remains of this year.
• Since last year, 5947 companies and close corporations sought voluntary liquidation.
• More than 8.9million people have bad credit records - accounts three or more months in arrears - and an average of 174000 are added to the list each quarter;
• More than 16.4million accounts, from electricity to retail store accounts, are impaired and more than 6million are more than a month or two in arrears;
• Household debt, which was R952-billion in 2008, tops R1.2-trillion. This is money owed to financial institutions for mortgages (more than half the total), overdrafts, leases, instalment sales and credit cards.

"We are in the midst of a debt tsunami. The sirens have rung, the wave has come and now it's simply sink or swim," said Roger Brown, chief executive of Credit Matters.

"Life has become a lot less affordable. It's become extremely difficult for many South Africans to get themselves out of debt," he said.

SA Petroleum Association executive director Avhapfani Tshifularo expects that on November 2 fuel prices will rise again - petrol by 30c a litre and diesel by 35c - affecting food prices and consumers' disposable income.

Pick n Pay's acting merchandise director Peter Arnold said his group has tried to absorb price rises.

The four major banks have taken steps such as restructuring repayments in a bid to spare people the loss of homes and vehicles.

Absa executive Kim Royds said: "Recently we have begun seeing a steady increase in the number of foreclosures, which shows that even though the economy is beginning to show signs of recovery customers are still struggling to recover."

Royds said foreclosures were up 14% on last year. The banking sector had also noted an increase in the number of people applying for debt counselling and insolvencies.

Standard Bank said it regarded foreclosure as a last resort as "it is not in the interests of the customer or the bank to follow that particular route".

Heads not above water

Case studies in the Consumer Debt report, showing how consumers registered with authorised credit counsellors are drowning in debt, include that of a Johannesburg couple with a net joint income of R50200 and monthly debt repayments of R57000.

The couple have a combined debt of R3.8-million, which includes six credit cards in arrears to the tune of R240000, a R1.2-million home loan, R85000 worth of personal loans, three retail store accounts totalling R70000 and a R14000 bank overdraft.

A 54-year old professional based in Johannesburg, with a net salary of R25300 and monthly debt repayments of R36084, has a combined debt of R1.9-million. It includes a R1.5-million home loan, three credit cards owing R129000, three overdrafts worth R127500 and a R15000 personal loan.