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Top red flags for savings accounts in South Africa – here’s what to look for

Thousands of South Africans are living beyond their means and going into debt amid rising living costs, says Sebastien Alexanderson, founder of National Debt Advisors.

“Debt addiction” has worsened over the past decade and has been associated with current economic turmoil and inflationary pressures – over-indebtedness will likely pose a risk to the financial health of many South Africans, Alexanderson said .

Recent data from the Veri Cred Credit Bureau (VCCB) showed that debt still outstanding at the end of the second quarter of 2021 reached around 2 trillion rand, with 717,495 people under debt review, he said.

“The average South African spends up to 75% of their disposable income on debt repayment, an increase of 5% from the long-term average of 70% reported by the Reserve Bank of South Africa.

The SARB’s monetary policy committee recently raised the repurchase rate (repo rate) by 75 basis points, putting consumers under even more pressure, with economists warning that further belt tightening is needed.

Alexanderson said the household debt-to-income ratio currently stands at 67% and is expected to reach 75% by the end of 2022, based on global macroeconomic models and analyst expectations.

In general, a a good debt ratio is less than or equal to 36%. Any ratio above 43% is considered too high and a sign of debt.

Alexanderson said to fight growing debt, consumers need to live within their means.

National debt advisers have suggested that the following signs could indicate debt addiction within households:

  • Spending more than 30% (or 50%) of gross monthly income on total loan repayments (secured and unsecured);
  • Be more than two months late on a credit commitment or household bill;
  • Have four or more credit commitments; and,
  • When spending on full loan repayment brings consumers below the poverty line.

Alexanderson offered the following advice on how to break the debt trap:

  • Avoid using credit: One of the first signs that your debt situation is spiraling out of control is when you start to feel like you have to rely on your debt increasing each month just to get through the month. When this happens, it’s time to reevaluate your living expenses and look for ways to live more frugally without incurring any new debt.
  • Buy what you can afford, not what you can borrow: This phrase may sound simple but, as the unwritten rules of the debt trap dictate, it really isn’t. One of the backdoor ways that creditors could lure you into crippling debt is by offering you very attractive credit products that are just at the edge of your affordability scale.
  • Start making a habit of saving: The importance of building up an emergency fund for unforeseen expenses cannot be stressed enough. Not having a savings plan for emergencies often forces people to take out loans when rainy days come.

Lily: The “real” value of the rand right now, according to the Big Mac Index