Households Are Falling behind on Debt Repayments

With the cost of living crisis, inflation (rising food, oil, and gas prices), and a growing culture of overspending on luxuries, it’s no wonder that households are falling behind on debt repayments. The repo rate has steadily climbed since COVID in an effort to stabilise the economy, leaving more and more people in the dust.

What can we do about this when we have no say over monetary policy and global happenings? When the only thing you can control is yourself and the economy as we know it is being blown out of the Blouberg waters?

This blog discusses the core reasons South African households can’t catch up on debt repayments and what they can do about it.

Cost of Living Crisis

We’ve all heard this word thrown around like the tongs on a Braai Day, but what does it actually entail? The cost of living crisis describes the heightening challenge of affording necessities like food, petrol, and rent/mortgage payments. We’ve been in the midst of this crisis since the global pandemic; when economies all over the world came crashing down after a period of immense stability and economic prosperity.

Budgets have been stretched far beyond their usual capacity, taking out more loans to compensate for increasing rates of retrenchments and unemployment. A string of shocks fuelled rocketing food and fuel prices, while aggressive interest rates added thousands to monthly home loans and other debt payments.

Our oil markets were also left quaking in their plakkies after the war between Ukraine and Russia, which drove down the strength of the Rand. Concerns have also grown about yet another global recession, especially since July 2022. Food is not forecasted to get cheaper.

Lastly, South Africans with home loans and other debt have been hit by monstrous interest rate hikes, with the prime rate climbing from 7.5% to 11.75% over 2022-now (2024).

Inflation

Congruent with rising repo rates, interest has reached Everest status. As Middle Eastern and European economies struggled, so did their exports and economies. This grossly affected South African food prices, driving up inflation and interest rates accordingly. Moreover, the weakness of the Rand made for climbing prices.

Attitudes toward Spending

South Africans, especially the lower and middle class, have worrying attitudes about spending. They are enamoured by luxury items, experiences, and entertainment, which makes for poor spending habits. Many South Africans have taken out loans to purchase consumer goods, particularly designer brands and trendy items. The impact of this debt can take a toll on their mental health, driving them to spend even more because of the retail therapy culture.

What Can We Do?

The only way to stay afloat in the middle of the economic storm is to control spending and save. You should budget according to the 50-30-20 method and save.

Paying off debt is also crucial to freeing up room in your budget. When you pay off your debt, you won’t have to worry about the high interest rates that credit card and other unsecured debt demand– or their high admin fees. What’s more is, that you won’t have to be nervous about how monetary policy affects your debt repayment terms and further weakens your buying power.

If you truly can’t afford minimum repayments or to meet living expenses, consider debt counselling. This is a legal means to consolidate all your debt payments into an easier monthly payment. We negotiate with your creditors on your behalf to afford you reduced interest rates, longer repayment periods, and less on your debt repayments. You’ll also access legal protection from judgments.

If this sounds like something you would like to learn more about, read our financial education blog or contact Debtco Group. We would love to be of assistance!