Warning over debt trap

CONSUMER watchdog the National Credit Regulator (NCR) warns that consumers trapped in credit,Picture: Getty Images

CONSUMER watchdog the National Credit Regulator (NCR) warns that consumers trapped in credit card debt and who have outstanding repayments should try their best to get through January without accruing more debt.

NCR data showed people remained in debt even after paying off one of their credit cards, as they shift debts from one lender to another.

The NCR said yesterday that the festive season left some consumers in a desperate situation related to their finances, and that there were many reasons why consumers need to borrow money at this time of the year.

The regulator’s consumer credit market report showed that the total outstanding gross debtors’ book was at R1.73 trillion as of end of September. This represented money owed by consumers in the form of mortgages, vehicle finance, credit cards, store cards and short term loans.

“Regardless of the reason for borrowing this month and given the outstanding gross debtor’s book, consumers are finding it hard to get out of the trap, and with increasing financial burden in January, before consumers sign credit agreements, they need to understand the cost of credit and credit agreements,” NCR head Nomsa Motshegare said.

Most South African households battle with financing issues, especially at this time of the year. Motshegare warned against consumers trying to cover up their indebtedness.

“If consumers provide false information to credit providers in a bid to get credit to fix their short-term financial gaps, they will lose the protection of the National Credit Act,” she said.

According to NCR, borrowing to fund for education or a home loan can be a good thing, but borrowing for consumables such as groceries, to pay off other debt or to fund luxuries could condemn one to a lifetime of debt.

“When taking credit avoid paying over too many months as it will cost you more in the end. A number of impaired records are already high, and need to be careful not to create a situation where all South Africans, especially the middle class, are no longer meeting bank’s lending criteria. This will be bad for the economy,” Motshegare said.

Other experts argue that it is not that consumers enjoy facing the music year after-year, but the reality is that the cost of living has increased incredibly in the past years and that inflation is outpacing monthly earnings.

-BERNARD SATHEKGE|bernards@thenewage.co.za