South Africans are in a “debt trap” because of unscrupulous money lenders who grant them credit recklessly, says KwaZulu-Natal chairman of the Debt Counsellors Association of South Africa, Kobus du Toit.
He says credit providers fail to ascertain whether consumers can afford credit.
Last week, Economic Development MEC Michael Mabuyakhulu said there had been a significant increase in the total credit granted to people in the province over the past financial year.
National Credit Regulator statistics revealed that the province had the third-highest amount of credit granted in the fourth quarter of last year – R13.9 billion, up from R12.5bn in the first quarter.
Du Toit, a commercial law attorney and debt counsellor, said on Wednesday that many of his clients were caught in the same trap.
“They spend their income repaying loans with huge interest. Some are so over-indebted that their cumulative monthly debt repayments are close to their net income,” he said.
“This means they cannot survive on what is left over after meeting their debt obligations and are forced to enter into further loan agreements at ridiculous interest rates.”
One South African entering the debt trap was a 28-year-old chemical technician.
When the woman, who did not want to be named, started working five years ago, she bought a house. To furnish her new home she entered into hire purchase agreements.
And she also wanted to look nice and opened clothing store credit accounts.
Keeping up appearances soon meant she had no food in the fridge and ended up using store cards for groceries on credit.
Already in debt, a call from a credit card company seemed like a blessing. “They told me I had been pre-approved. I thought, I can’t be in that much financial trouble if I am still being offered a credit card, so I took it, why not?” she said.
She used the credit card to buy things she “could not afford to pay cash for”.
As soon as she made a few regular payments, her credit limit was increased. With a R29 000 credit limit she now wanted to buy a television. “It’s R18 000,” she said. “I can afford it.” The reality is, she could not.
Du Toit said people like her should be protected from over indebtedness by the provisions of the National Credit Act. But credit providers interpreted the act to suit themselves, he said, and did not conduct comprehensive affordability assessments, including taking into consideration the client’s personal circumstances and studying their credit bureau reports.
Mabuyakhulu said consumers should take responsibility and change their behavioural patterns when it came to financial and credit matters. - The Daily News