A look at debt in South Africa, three years post Covid-19

File image.

File image.

Published Mar 22, 2023

Share

Johannesburg - March 26 marks the three-year anniversary of the lockdown, as well as the impact that this devastating event had on the local economy.

To add to this, South Africa was recently placed on the greylist, and economists are predicting a 45% chance of a recession in this coming year, which makes it seem like there is no reprieve on the cards for South Africans.

CEO at National Debt Advisors, Charnel Collins, said the onset of Covid-19 brought with it a debt pandemic that is still ongoing.

“The immense financial pressure on South Africans has naturally led to many consumers turning to credit and then seeking debt relief when the credit can no longer be afforded,” she said.

Collins refers to an analysis done by the National Debt Advisors Research Department that showed that between March and December 2020, 80% of the finances in South African households were negatively impacted as a result of lockdown, job losses and a subsequent interruption of income.

CaptionCEO at National Debt Advisors, Charnel Collins,said the onset of Covid-19 brought with it a debt pandemic that is sadly still ongoing. Picture: Supplied.

She points out that consumers who stopped paying off their debt after the first lockdown might be eligible for debt prescription. She further explains that debt becomes prescribed after three years (or the applicable time period, depending on the loan type) if a creditor does not contact, request payment, or contact the consumer regarding any legal action.

However, looking at NDA’s client base, when comparing applicants from 2019 – 2021, applicants seeking debt relief declined. In 2020, applicants declined by 7%, and in 2021, applicants declined to a further 9% compared to 2019. In 2021, Statistics SA reported that South Africa had the highest unemployment rate in the world, at 34%.

“Unemployment played a major role in the decline in debt relief as one needs to have an income to qualify for debt review. Many suffered job losses and salary cuts during Covid-19, which leads to not only further indebtedness but also reduced access to financial support, only further painting a bleak image of the state of South Africans’ finances,” Collins added.

The use of credit does not seem to be decreasing either. Recent data from analytics and research company Eighty20’s Credit Stress Report for Q4, 2022 showed that South Africa’s middle class is turning to credit to fund their lifestyles while increasingly defaulting on their loans.

It was reported that in the final quarter of 2022, there were more than 800,000 new entrants into the credit market, which is the highest since the start of the pandemic, with credit card balances surging by 12% year-on-year.

Collins highlights that not all loans can be prescribed and that it’s best to consider seeking relief options for any mounting debt. Credit can lead to excess debt if not maintained responsibly.

“Millions of consumers continue to fight the ongoing battle of debt addiction. With better financial management and seeking the right help, you are one step closer to getting your debt under control,” concluded Collins.

The Saturday Star