Red flags that your debt addiction is worsening

Millions of South Africans are struggling to fight the ongoing battle of debt addiction – a problem that has worsened over the last decade.

Given the current economic turbulence and its knock-on effects on the consumer – rising petrol prices and inflationary pressures – over-indebtedness will increasingly pose a significant threat to the financial wellbeing of South Africans.

Statistics released by Veri Cred Credit Bureau show that debt still outstanding at the end of second quarter of 2021 reached R2.077-trillion, and 717 495 people were under debt review.

This reality needs to be seen within the context that the average South African is spending up to 75% of their disposable income on debt repayments – a 5% increase from the long-term average of 70% as reported by the South African Reserve Bank.

The household debt-to-income ratio in SA stands at 67% and it is expected to reach 75% by the end of the year, as per the Trading Economics global macro models and analysts’ expectations.

Generally, a good debt-to-income ratio is anything less than or equal to 36%. Any ratio above 43% is considered too high and a sign of indebtedness.

South Africans need to be encouraged to find ways to live within their means – the inability to do so is at the heart of the problem. The following signs could be indicative of addiction to debt:

  1. Spending more than 30% (or 50%) of their gross monthly income on total borrowing repayments (secured and unsecured).
  2. Being in arrears for more than two months on a credit commitment or household bill.
  3. Possessing four or more credit commitments

Below are some important tips on how to break the debt trap:

  • Avoid using credit: One of the first signs that indicate that your debt situation is spiralling out of control is when you start feeling like you must rely on debt on a monthly basis, just to make it through the month.
  • Buy what you can afford, not what you can borrow: One of the devious ways creditors might lure you into overwhelming debt is by offering you very attractive credit products that fall right at the edge of your affordability scale.
  • Start getting into the habit of saving: the importance of building an emergency fund for unplanned expenses cannot be emphasised enough.
  • Alexanderson is debt counsellor at National Debt Advisors

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