If you’re battling to pay all your bills every month end, and you feel like you are on a money squeeze, you are not alone. According to the Reserve Bank, the average middle class family spends nearly half of its budget on food, transport costs and electricity and in the last four years the costs of that half of the budget has increased by around 80% while the average salary has only increased by 40% – that is a funding gap of 40%.
Ian Wason, chief executive of Debtbusters, says in the year from January 2013 to January 2014, his debt counselling firm has seen an 85% year-on-year growth in the amount of debt counselling applications with more than 100% growth in the low income division. “For the year to date, debt counselling applications are up 30% on last year,” he says.
Wason notes that interest rate increases, combined with increased petrol priced and rising food costs are pushing many consumers over the edge, causing them to become over-indebted. “People are struggling to pay for basic necessities such as transport, food, electricity, education and water, and are resorting to buying these items on credit. Upper-middle income earning South African consumers with secured assets such as home loans and vehicles are starting to feel the pinch and will eventually begin to default on their payments,” he says.
On average, DebtBusters clients spend more than 100% of their net income repaying their debt, excluding living expenses when applying for debt counselling. This is up from 85% in from January 2013, largely due to ‘pay-day’ loans.
Santie Schindehutte, a mediation manager at the National Debt Mediation Association (NDMA), says payday loans are becoming increasingly popular. “This is where people take a short term loan for R1 000 to R3 000 to tide them over till pay day but then they simply access the short term loan facility again, keeping themselves in debt,” she explains. It is not dissimilar to consumers who are using store cards to buy groceries on credit and eventually are unable to afford their store card repayments.
Schindehutte points out that accessing credit through personal, unsecured loans is not the answer. “In three to six months, these consumers are in the same position of not being able to make ends meet and are also no longer able to access any credit,” she says.
The latest credit statistics from the National Credit Regulator (NCR) show that for the quarter to December 2013, there was an increase of 1.8% in the number of credit-active consumers to 20.64 million. Nomsa Motshegare, chief executive of the NCR says the number of credit accounts increased from 71.17 million in the previous quarter to 73.18 million. “The number of impaired accounts increased from 19.25 million to 19.74 million when compared to the previous quarter, an increase of 493,000 quarter-on-quarter and 2.22 million year-on-year,” she says.
What can you do?
Schindehutte advises that you revise your budget and cut out luxuries until you are able to manage your expenses. “Get rid of the second cell phone, disconnect the satellite television subscription for a few months and use that time to pay off your credit so that you free up cash in your budget to pay for necessities,” she says.
Debtbusters offers the following tips to help reduce your expenses:
- If you are close to the end of a rental lease, find a cheaper place to live. Consider moving in with family or friends to reduce your accommodation costs while you work on improving your finances.
- Check if your lease allows you to sub-let. You can get a flatmate to share the rent.
- If you are a homeowner, you can rent out an extra room in your house.
- Lease your home and move in with friends. Make sure the rent you charge covers your bond repayments as well as insurance, property insurance as well as routine maintenance and repairs.
- Sell your home. If you are paying for a house you truly cannot afford, this is the last resort. But consider selling your home before your bond repayments go into default.
- Find out if your local municipality offers free energy audits. This will help you identify if there are problem areas where you can reduce energy costs.
- Replace old showerheads with new low-flow heads.
- Use fans instead of an air conditioner to cool your home.
- Hang up clothes to dry instead of using a tumble dryer. Not only is this less expensive but hot air wears out your clothes more quickly.
- If you need to replace your washing machine get a front-loader that will save you up to 50% on electricity costs as well as save water.
- Take showers rather than baths and limit the time of your shower.
- Never run a dishwasher that is only half full of dishes.
- Use public transport. Access the Gautrain, the MyCiti and Mynah buses for safe transport to and from work to reduce your petrol costs.
- The average smoker buys a pack every two days at an average R24. That works out to R4 368 a year for 10 cigarettes a day. Kick the habit, save money and improve your health.
- If you have been smoke-free for at least a year, you can also ask your life assurer to review your insurance premiums on the basis of improved health risk.
- Insist on generic medicines when you go to the pharmacy. This does not mean that the medication is of lower quality, it is simply a brand name difference. It will, however, make a difference to your wallet.
This article was first published in City Press on 18 May 2014.