Despite some positive signs, particularly a prolonged period without load-shedding, many South Africans still feel the cumulative effects of high interest rates, inflation and an underperforming economy.
The repo rate has been steady for over a year but increased from 3.5% in 2021 to 8.25%, where it remains for the moment. The repo rate is the rate at which the Reserve Bank lends money to private banks and when it increases, so does the prime lending rate.
Inflation too has remained reasonably consistent, and despite a recent decline is still at the upper end of the Reserve Bank’s 3% – 6% range. This means the purchasing power of the money in people’s bank accounts is worth 4.6% less than a year ago. This is an average rate so consumers may experience higher inflation on some goods and services, including essentials such as energy and some foodstuffs.
Real GDP growth declined from 1.9% in 2022 to 0.6% in 2023. The constrained economy makes it difficult for businesses and companies to increase salaries. The result is that take-home pay is not keeping pace with inflation.
All this has contributed to many of us having to tighten our belts, explains Neven Narayanasamy, from specialist loan provider, DirectAxis.
He says that there are various strategies people can adopt to make it through the month.
Perhaps the simplest is setting a budget. Understanding where your money is going each month and cutting out any unnecessary expenditure is a sensible first step towards better managing your money.
If you can, try to focus on paying off debts that attract the highest interest. There are plenty of free tools such as www.directaxis.co.za/pulse that you can use to check your credit rating and which also provide a summary of your credit agreements, such as bonds, vehicle finance, cellphone contracts and store accounts.
If you’re still struggling to meet your monthly obligations, speak to your creditors. It may sound daunting, but reaching some arrangement is better than not paying at all. If you miss payments or stop paying, it’ll negatively affect your credit score, which in turn can limit your ability to borrow money in future or mean you pay a higher rate of interest.
Debt consolidation is another option. While it isn’t a silver bullet and may not be the best solution for everyone, it can be a useful tool to get your financial affairs under control, particularly if you’re feeling stressed about dealing with a complicated financial situation.
As the name suggests, debt consolidation involves taking out one loan to pay off a range of debts such as loans, credit cards or store cards.
Critics argue that the only real advantage of doing this is that rather than having a whole lot of smaller creditors to manage, you have one large one.
While this is true there are some other potential benefits. Consolidation loans usually have fixed interest rates so it’s easier to budget and manage your financial affairs. Having only one loan to repay also means you’re less likely to accidentally miss a payment.
It can also save money on service fees and credit-life-cover costs. Depending on how it’s structured the consolidation loan could also improve your cash flow by allowing smaller payments over a longer period. Bear in mind, though, that you will be paying interest over a longer term too.
If you do find yourself in the fortunate situation where the loan frees up some additional cash each month, either use the money to repay the loan faster or put it into a savings or investment account.
Another, more drastic alternative for people struggling to repay debt is debt counselling or debt review.
This is a voluntary, formal process in terms of the National Credit Act for over-indebted consumers. It’s important to understand that while under debt counselling consumers cannot apply for any further credit until they receive their clearance certificates.
Anyone considering debt counselling should also take care to deal with a reputable debt counsellor, who’s registered with the National Credit Regulator and make sure they fully understand what they are entering into.
The National Credit Regulator recently published a circular warning about unscrupulous debt counsellors placing people under debt review without the consumer realising they had agreed to this.
According to the circular, debt counsellors have a duty to:
Explain the debt review process to ensure consumers understand the implications of the process and make an informed decision;
Provide consumers with proof of the application;
Conduct a proper assessment of a consumer’s financial position before placing them under debt review; and
Keep a record of all activities relating to a consumer’s debt review application process.
Narayanasamy says that if you are struggling to make ends meet, burying your head in the sand isn’t a solution.
“Hoping for the best isn’t a strategy, but neither is making a rash decision that could have long-term consequences. Rather calmly assess your situation and do your homework as to which is the best solution for you. If you’re still not sure, speak to your bank or a financial professional you trust to confirm your decision.”