Many South Africans are finding it increasingly difficult to keep up with debt payments. Recent news from FNB suggests it takes an average of five days for a middle-income consumer to spend up to 80 percent of their monthly salary, while Statistics South Africa says the number of civil judgements recorded for debt increased by 7,4 percent in the three months ended February 2022 compared with the three months ended February 2021.

“The rising cost of living and significant debt levels mean a worrying proportion of South Africans are battling to meet their financial obligations each month. Many people have resorted to opening a separate bank account to which they redirect their salary as the choice is between ensuring their debit orders are paid and providing enough groceries for their family,” warns PAYM8 CEO Andrew Springate.

While soaring food and fuel prices are certainly not within any individual’s control, Springate says not enough is being done to assist consumers with financial planning. “Too many people fall into a debt trap from which its extremely difficult to recover. Previous debt, a poor credit record, and the temptation to take on more debt to make ends meet becomes a vicious cycle which then pushes consumers to look to unsecured lending mechanisms and in dire circumstances to unscrupulous lenders for relief.

He adds that recent interest hikes and further increases of 100 to 250 basis points anticipated over the next year will only exacerbate the problem. “There is a perfect storm brewing consisting of high debt levels, rising fuel prices, and almost inevitable interest rate increases which will make the cost of debt even more expensive than it already is. So where do consumers turn? It’s an alarming situation that requires urgent attention.”

Springate says the potential consequences are everyone’s concern; from consumers themselves to consumer-facing businesses as well as credit and financial service providers.

“The consumer debt burden invariably shifts downstream to businesses who have to deal with failed debit orders, then legitimate debt collecting companies having to process failed transactions due to insufficient funds. It squeezes business margins to their breaking point and puts entire industries under severe strain. Proper financial planning and ensuring credit is extended responsibly are now vitally important and should be pursued wherever possible to avoid even more severe consequences than we are already likely to experience in the coming months,” he concludes.