Johannesburg – Consumers have been advised to avoid falling pre-lockdown spending habits.
According to DebtBusters’ quarterly debt index for the first three months of this year, even before the national lockdown, consumers were facing increased financial strain and taking on more debt to supplement incomes that declined.
DebtBusters COO Benay Sager said although inflation was at the bottom end of the South African Reserve Bank’s (Sarb) target range at 3%, the reality for most people was that incomes would not increase. With the local economy expected to shrink significantly this year, it was unlikely that many employers would consider or be able to give salary increases.
Sager said a combination of reduced earning potential in a contracting economy and inflation will increase pressure on consumers.
“That will leave them with a stark choice; to borrow more to make up the shortfall, or reduce their expenditure,” he said.
Sager said with an average total debt in Q1 2020 up 33% compared to the same period in 2016, for the majority of consumers, borrowing more was not an option.
The debt index showed DebtBusters’ clients earning more than R20 000 in the first quarter of the year already had a debt to annual income ratio of 142%, which was unsustainable.
“Reality is that it will be harder and more expensive to borrow money. In a dire economic environment, lenders will tighten lending criteria and increase rates to offset risk,” he said.
Sager said consumers would quickly need to come to terms with that they cannot return to their old spending habits and look for ways to cut unnecessary expenses.
“As South Africa emerges from the lockdown it is vital that consumers keep a careful eye on their income and expenditure and get professional help if they realise they’re getting into trouble. The earlier someone seeks help the easier it is to develop a plan to negotiate with creditors to help them get out of debt. If they wait too long, those options may not exist,” Sager said.