This is a reality that many consumers in South Africa face.
Total consumer debt has increased to R1,39 trillion and 47 per cent of the 19,69 million credit active consumers are behind with repayments.
This is a crisis for consumers and requires more focused attention from consumers, government and credit providers.
According to Paul Slot, Director at Octogen, the cause of the consumer debt crisis is simply too much debt.
Many households that have increased borrowing for household consumption are finding it difficult to pay normal household expenses and monthly debt repayment.
Although authorities refute talks of a consumer debt crisis, the fact remains that millions of consumers are in crisis mode and need assistance.
Total consumer debt increased by 22 per cent over the last 4 years but the number of credit active consumers increased by only 8,5 per cent.
The growth in unsecured debt over the same period was 156 percent.
The result is increased short term debt, more expensive debt and a higher monthly debt repayment per consumer.
Whilst the consumer must carry much of the blame for this situation aggressive lending by credit providers persisted for far too long.
It is impossible to determine how many consumers who are behind with debt payments are in that position but still some credit providers allow consumers to use up to 70 or 80 per cent of monthly income to repay debt.
This leaves the consumer with 20 or 30 per cent of income to pay for household expenditure, travel, water and lights, insurance and medical aid.
The practice of allowing consumers to commit 70 to 80 per cent of income is, according to Slot, a reckless and immoral practice.
Most consumers that commit more that 40 to 50 per cent of income to monthly debt repayment may find it difficult to service normal household expenses.
Many consumers are in a crisis mode simply because they do not have sufficient funds to service debt after paying normal household expenses.
For most consumers tackling a debt problem is a daunting task and this may be the reason why so many consumers avoid it and instead use new debt to repay existing debt.
This is obviously not a solution but rather an aggravator of the situation.
Many international studies have proven that it is almost impossible for consumers to rectify this position on their own.
They need assistance and guidance to manage household obligations and to reschedule debt repayments.
History confirms that this process can only be effective if implemented over a few years.
According to Slot, excellent progress has been made in South Africa with rescheduling consumer debt and more consumers should make use of the options available to solve their debt crisis.
Currently consumers under debt review pay R300 million a month to credit providers.
Many consumers who entered debt review a few years ago are now debt free and most report that they were able to repay debt well within the anticipated timeframe.
The strong and healthy banking sector in South Africa allowed credit providers to agree to a proactive and bold industry agreement, as part of the Task Team Agreement, to substantially reduce the cost of credit for consumers who enter the formal debt review process. Millions of consumers are in a crisis mode and need help.
These consumers should be encouraged by government and credit providers to enter the formal debt review process and benefit from this meaningful debt cost reduction solution.
