Unsecured credit boom as SA goes into debt before Black Friday
There is a boom in unsecured credit even before Black Friday and added to the massive increase in the price of fuel, the recent 15% increase in electricity rates and a possible rate hike in December, the South African consumers may take on more debt just before Christmas.
The National Credit Regulator found in a recent study that consumers struggle to pay off their credit in the short term, with most consumers (23%) having increased credit card debt due to “late or late payments.” missed âfor unsecured credit transactions.
Consumers who had funds available in their credit cards used them more regularly, especially when they had lost some of their income or savings.
TransUnion’s most recent Consumer Pulse Study also found that 41% of consumers continue to experience financial pressures because they have had bill or loan arrears in the past three months, with 33% reporting missing one or more. two payments, while 17% missed three.
These over-indebted consumers must now also pay R 1.21 per liter more for gasoline and R 1.48 more for diesel after a staggering 31.4% increase since January.
âFrom all of this, it’s obvious that consumers are struggling to make ends meet and live on credit to pay off debt and living expenses. It is indeed a very dangerous situation as Black Friday approaches, âsaid Neil Roets, CEO of Debt Rescue.
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Consumers warned about unsecured credit
He warns that the lure of bargains amid the frenzy of Black Friday can plunge many South Africans into further financial trouble as general daily costs continue to climb.
According to a recent Debt Rescue poll of 1,000 South Africans recently, 86% of women who participated said they would shop during Black Friday weekend, compared to 15% of men who participated. In addition, 60% plan to buy on credit so as not to miss a good deal.
The survey also showed that women use bank and credit cards much more than men, mainly because they traditionally do household groceries.
There will obviously be no stopping consumers wishing to spend money or credit on Black Friday and Roets advises them to:
- Make a plan before you buy and stick to it.
- Budget how much you can afford to spend.
- Make a list of what you want to buy to make sure you don’t get caught up in the shopping spree for the sake of shopping as there is a 50% discount.
- Know your prices because the offers are not always as good as they look.
- Avoid purchasing products in-store or by credit card, as you will incur interest on those purchases, which could easily void any discounts you were hoping to earn.
Roets says that as Christmas approaches, consumers may also be tempted to buy gifts on credit, which could put them in further debt.
âGoing over budget can lead to a long-term debt spiral. Historically, consumers would have relied on year-end bonuses to pay off debt incurred during this time, but bonuses are less likely this year due to the financial impact of the pandemic. “
READ ALSO: South African Consumers Hungry For More Credit, As Delinquencies Stabilize
Is there an unsecured credit card crash?
Could this spiraling debt lead to a credit crash similar to the one the world experienced in 2007-2008? Roets says the risk of an accident is currently low.
âThe 2007-2008 crash was the result of very specific weaknesses in the US credit environment.
“It caused a crisis in the US real estate market and the impact of instability has spread globally, but it has since been resolved.”
He points out that South Africa then had a head start with excellent legal provisions to prevent this risk of institutions offering more debt to over-requested clients in the form of the National Credit Act and its criteria for regulated evaluation.
âA lot of the problems in the unsecured loan space come from unregistered credit providers and this is where consumers need to be more savvy. Many current issues have been exacerbated by the pandemic and the impact of the foreclosure on consumers and their incomes.
“I hope that if we can prevent a fourth wave, we will begin to see a gradual return to pre-pandemic trade levels which should bring relief to many households as their income levels are restored,” he said. Roets said.