Why are people not paying their debt?

The latest Credit Bureau Monitor (CBM) released by the National Credit Regulator (NCR) revealed that there has been an increase in the number of credit defaulters. According to the results, credit facilities over the period decreased by R1.26 million quarter-on-quarter, while unsecured credit (loans that aren’t tied to an asset, such as personal loans) increased by R1.73 billion over the same time.

“The total outstanding consumer credit balances (or gross debtor’s book) as at June 2016 was R1.66 trillion, representing an increase of 0.31% quarter-on-quarter and 2.35% year-on-year,” explained the report.

Outstanding balances

The trends for outstanding balances for the quarter ended June 2016 were as follows:

• The mortgages debtors book increased by R2.70 billion (0.31%) for the quarter ended June 2016 and by R9.12 billion (1.06%) on a year-on-year basis.
• The secured credit debtors book increased by R4.08 million (1.10%) for the last quarter, and increased by R17.52 billion (4.91%) year-on-year.
• The credit facilities debtors book decreased by R206.14 million (0.09%) for the quarter ended June 2016 but increased by R7.47 billion (3.53%) year-on-year.
• The Unsecured credit debtors book decreased by R2.44 billion (1.48%) for the last quarter but increased by R49.37 million (0.03%) year-on-year.

The reason for the increase

According to debt counselling firm DebtBusters, there are a number of reasons why more people are not paying their loans back. One of the primary reasons would be the tough economic environment that many consumers are facing.

The rise in commodities prices is also a factor to consider. “A practical example would be the increase in oil price which has a negative impact on a lot of sectors at a micro and macro level. This leaves consumers with limited cash to service their accounts thus they end up defaulting. Retrenchments by most businesses leaving employees with no source of income,” explained DebtBusters.

Furthermore, DebtBusters highlighted that consumers struggling to pay usually use other types of debt to pay the debt they already have. But taking out new debt has become increasingly difficult with new affordability assessments restricting easy access to credit.

“If people are struggling to repay their debts they should consider changing their lifestyles and reviewing their budgets. It takes a lot of discipline to stick to your budget. The best thing to do is talk to someone about your debt problem. Seeking professional advice from a registered debt counsellor could the best route to take if you are struggling to repay your debts. A debt counsellor will do an assessment of your financial situation and give you advice on how to better manage your money. If you are over-indebted and need to reduce your monthly debt repayments, debt counselling might be your best bet,” said DebtBusters.

Managing your debt

Nomsa Motshegare, CEO of the NCR in concerned with the continuous deteriorating consumer credit health. She advised consumers to draw-up a budget and to keep track of all expenditure. In addition, she cautioned consumers to live within their means approaching the festive season.

DebtBusters added that consumers need to start living within their means. “Do not spend more than you make each month as this could cause many problems down the line. Once you start using credit to make ends meet, it becomes very difficult to break this cycle which could end up costing you lots of money and reduce your credit score and credit worthiness.”

DebtBusters offered the following tips to help consumers reduce their expenditure and better service their debts, to avoid defaulting on payments:

• Stop eating out as much, cook at home.
• Stop buying coffees and lunches every day and use instant coffee and take pre-packed lunches to work.
• Buy in bulk to save money.
• Don’t buy clothing every month that you don’t need.
• Shop around for cheaper insurance and medical aid.
• Stop impulse buying, sleep on it and decide if you just want it or actually need it.
• Save on rent by sharing a flat/apartment/house or stay at home for longer.
• Use public transport if it will save you money and is accessible.

“Consumers who are already battling with their debt repayments are advised to approach their credit providers to find an alternative arrangement. Alternatively, over-indebted consumers can approach the nearest debt counsellor for assistance,” said Motshegare.

 Handy tip: You can apply for debt counselling on Justmoney, click here.