Research shows South African consumers’ debt situation is worsening, with the average debt-to-income ratio reaching its highest levels. The research index showed that consumers inquiring about debt counselling were spending about 60% of their take-home income to service debt. More concerning was that across all income bands the debt-to-income ratio was at 122% in the fourth quarter of 2021 and 152% for those taking home R20 000 or more.
We have just come out of the holiday season, where consumers might have made some unwise decisions in spending. Added to this the reserve bank increased the interest rate by twenty-five basis points in November. This leads to consumers to use unsecured lending to offset the erosion of their take home pay. The financial situation looks quite bleak going forward. Currently the economy is down, and economists are projecting that things are going to get even worse. The last year has created a negative relationship with finances -stemming from Covid 19 job cuts, unemployment and pay cuts which has created an incredible amount of uncertainty.
Annalise van Der Pohl , chief operating officer at Debt Rescue South Africa , spoke to Radio Islam and says that we are currently sitting at the highest unemployment figures and high inflation with massive impact on consumer pockets. Approximately forty percent of people are in arrears on their credit cards.
As people are projected to lose homes and cars if the economy is not moving and reaches stagnation the main causes of high interest rates is that employed people who have a certain check at the end of the month , are unable to live within the amount that they earn.
Employed workers are finding it increasingly difficult to stay afloat to service increased amounts of debts. People have begun downgrading their lifestyles to prevent loss of their homes or cars. Yet it seems that multiple streams of income are an important part of the financial decisions that we make in 2022. Once employed, people become a slave to a salary and only focus on the monthly pay date. And once we receive this salary, we immediately want to spend everything that we have.
How can we reframe our minds to live a life out of debt?
- Budgeting within the home with all members of the family so everyone is aware of the financial situation in the home. When all family members are aware of the expenses, they are aware of the financial decisions and impacts on the home.
- Start living within your means – but taking out money from your salary to remove the spending of all your money without saving any.
- Engage with your creditors – take the time to learn how to engage with your money
- Have an income statement – checking the money that is going in and going out.
- Start analyzing habits that allow for selfish spending behavior- eating multiple take outs can be equal to a home cooked meal for the entire family. Habits such as smoking etc. are sure fire ways to waste money.
The Holly Prophet (S) was famously noted as saying:”If a man was killed in battle for the sake of Allah and he owed a debt, he would not enter Paradise until his debt was paid off”.
Rasulullah (s) has said that after the major sins, the worst sin that a person can take back to Allah is for him to leave behind debts without sufficient funds to settle them. [Abu Dawud]
Settling the debt of the deceased: Abu Huraira (ra) has stated: Whoever borrows money with the intention of repayment Allah will facilitate its repayment, and whoever borrows money while intending not to pay, Allah will ruin him.” (Bukhari)
The longest ayah in the Qur’an is the ayah on debt! This ayah ensures that every aspect of debt is covered- from the loan itself to the borrower and the writing down of the debt and the incredible importance of authenticating the debt.
A constant salary has the effect of creating a false sense of security. In today’s climate we are in need of a deeper understanding of the harms of debt as well as a move towards multiple stream incomes to ensure that we are educated on how to speed money in a manner that is not incurring more debt.
Research shows South African consumers’ debt situation is worsening, with the average debt-to-income ratio reaching its highest levels. The research index showed that consumers inquiring about debt counselling were spending about 60% of their take-home income to service debt.
Listen to the full Podcast here