Consumers faced a tough year in 2023 with an increased number of people who opted to apply for debt counselling or relying on short-term loans to supplement their salaries. 

With high inflation and interest rates, and a straitened economy combining to erode disposable incomes, many consumers are finding it hard to meet their monthly financial obligations. Some are now falling into heavy debt.

Last week, Sowetan Consumer reported how first-time property owners who took up bonds at the height of the pandemic between 2020 and 2022 when interest rates were low are now struggling to make monthly repayments because of interest rates that have since jumped. 

The average interest rate for a bond grew from 8.3% a year at the end of 2020 to 12.3% by end of 2023. Average interest rates for unsecured debt are now at an eight-year high of 25.6%.

According to DebtBusters, one of the major debt counselling firms in the country, debt counselling enquiries increased by 46% and demand for online debt management was up 54% in the last quarter of 2023 compared to the same period the previous year.

The firm released its debt index for the last quarter of 2023 recently.

Debt review is a simple debt relief measure and that places a moratorium on the legal action that a credit provider can take against a consumer.

The consumer applies for debt counselling and then the counsellor informs the credit provider about the application. The process involves assessing the consumer’s financial situation and renegotiating the debt with credit providers. 

“From that moment on, the credit provider is not able, through our legal process, to institute a legal action against the consumer,” explained Timmy van der Grijp, a legal adviser in the debt counselling department at the National Credit Regulator (NCR).

At least 95% of new debt counselling applicants had loans while 28% had payday loans, which indicate that they are supplementing their income with short-term loans and personal loans that have become a lifeline for many, said Benay Sager, the executive head at DebtBusters. 

Some 48% of the applicants had unsecured debt like credit cards and store cards while 28% were struggling with their bonds repayments and 24% could not pay for their vehicles.

The major lenders were banks followed by retailers.

“Among other findings, the index shows that consumers who applied for debt counselling had 39% less purchasing power than in 2016 and, on average, were spending 62% of their take-home pay to service debt,” said Sager.

Van der Grijp advised indebted consumers to be careful when choosing debt counsellors. He advised consumers to choose an NCR-accredited counsellor closer to where they live so that they can personally visit them instead of consulting over the phone.

The NCR issues counsellors a unique registration number and an expiry date attached on a sticker which, according to the regulator’s rules, must be visibly placed at the entrance of the counsellor’s office.

Consumers can also verify the counsellor’s credibility on the NCR’s website.