Ladies in the red

Thousands of South African women are drowning in debt, most as a result of taking unsecured personal loans to repay previous loans, says a top debt counselling firm.

Moeshfieka Botha, a consultant for Credit Matters, says the largest trend emerging from the over-indebted is multiple loans. She says in the past, people used personal loans for tuition and home improvements. These days, women are taking out these loans just to survive.

According to the National Credit Regulator, at the end of June last year, there were 18.8 million credit active consumers in SA. Of the total, 47 percent or eight million consumers had an impaired credit record – they had judgments against them, or three months’ outstanding payments.

Botha says many single or divorced mothers can’t support their families on their salaries alone. This has resulted in them first turning to shop cards to buy clothes, furniture and food. Soon, they are unable to comfortably make all of their monthly instalments and then they turn to personal loans.

Case studies reflect that many have credit cards with each of the major banks. They often have personal loans with one or more, along with two or more from smaller banks.

“Women do what they have to in order to survive. When there is no disposable income left, they turn to personal loans,” says Botha.

She says many single or divorced mothers enter into debt because they factor in maintenance payments as part of their income. But Botha cautions against this. Although fathers have signed agreements – personal or court-ordered – many do not honour these undertakings.

Another trend, says Botha, is that women spend too much money on “entertainment”. While their financial situations are changing, not many have wanted to change their lifestyles.

She says women would much rather pay for their entertainment – which includes eating out with friends – with their credit cards than to cut out or cut down on these activities completely.

On average, many over-indebted women have multiple shop accounts. And while they’re in trouble, many are in denial.

“Many women still believe in retail therapy, even when they can’t afford it,” says Botha.

And by the time they approach debt counsellors for help, some women have up to two years of unopened bills. “People need to get out of their denial and take responsibility for their situations,” says Botha.

According to the National Credit Regulator’s Consumer Credit Market Report for the first quarter of this year, the total for new credit granted was R95.03 billion.

The number of new applications between January and March was 9.16 million.

More than half (50.93 percent) of those were rejected.

By the end of March, the outstanding gross debtor’s book of consumer credit was R1.32 trillion.

Mortgages accounted for R796bn (60.29 percent).

Secured credit agreements made up 19.35 percent, credit facilities accounted for 11.15 percent and unsecured credit stood at 9.15 percent.

Of the total value of credit granted between January and March, the Western Cape accounted for the second highest figure at R12.39bn or 13.03 percent.

Coupled with huge debt, an expert warns that people are not saving enough money.

According to National Treasury, in a statement made this year, about 90 percent of South Africans don’t save, and the report showed that 44 percent of working South Africans have no formal retirement savings.

This week, the Reserve Bank announced that an estimated 76 percent of disposable income is being spent servicing household debt.

Elizabeth Lwanga-Nanziri, CEO of the SA Savings Institute, says there is no one-size-fits-all approach to saving, but a starting point is 10 percent to 15 percent of monthly income.

She says people need to save as much as they can afford. Saving must be done with a goal in mind and can be done in several ways, including stokvels, which are popular with many women.

Lwanga-Nanziri says according to Media Club South Africa, women make up 86 percent of the grocery stokvel membership.

She also points out that paying off debt is in itself a goal.

Lwanga-Nanziri says being able to service one’s debt is extremely important as the interest accruing to any outstanding debt increases with time.

“It is important to get the debt out of the way and start on a clean slate. Looking at the maths, if the debt charges higher interest than you earn from the savings account, it is better to pay off the debt first before saving,” says Lwanga-Nanziri.

She cautions that while it may be difficult to pay off debt and save, it is recommended because emergencies may happen – regardless of whether one is indebted or not.

Ideally, says Lwanga-Nanziri, people should have a three- to four- month equivalent of their salary as a buffer.

Lwanga-Nanziri advises women to save in separate categories. Emergency savings should be categorised into medical, education, transport or extended family. When an emergency pops up, women should dip into the allocated fund.

Botha says the only way for women to change the status quo is to take responsibility for their debt. She suggests they do a stock-taking of all of their accounts, be honest with themselves when drawing up a budget, then reach out for help before it’s too late.

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CASE 1: High cost of housing

Anele* is a divorced 30-year-old woman with one child.

She has a total of nine accounts. She is permanently employed and has a total income of R17 627. This includes income from property rental. After deductions, she takes home R12 802.

Anele’s living expenses amount to R7 546. Her biggest expenses include R2 000 for educational fees and R2 200 on groceries. She also has a funeral policy, vehicle insurance and telephone bill.

After her living expenses are paid, Anele is left with R5 300 disposable income. Her combined monthly instalments, however, amount to R7 933. Anele’s debt totals R399 370. She has a home loan of R250 975, for which the monthly instalment is R2 800.

Her vehicle finance is R112 863, for which the instalment is R2 296.

She has four store accounts, two personal loans from the same bank, and one credit card. Her assets include property and a vehicle.

Anele is the sole breadwinner. After the divorce, her ex-husband left her to pay all the debt and doesn’t pay maintenance for their child, she says.

Anele cites her divorce, family responsibility and the high cost of housing as her reasons for over-indebtedness.

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CASE 2: Aggressive marketing

Natasha*, 43, is a permanently employed single woman with a teenage child. She has 15 accounts; that doesn’t include a bond or vehicle finance.

Her gross salary is R22 500. She doesn’t have medical aid, but is part of a pension fund. Her net salary is R17 662 and her living expenses add up to R11 960.

Her biggest expenses are rent at R3 500 and R1 500 for groceries.

She is left with a disposable income of R5 702, but her combined monthly instalments amount to R11 538, nearly double the amount she has available to service debt.

Natasha has 10 store cards, and five loans. Her total debt is R161 677 and of this, loans account for R86 000.

More than R21 000 was spent using clothing accounts, and R28 685 was spent at furniture and appliance stores.

A review of Natasha’s fixed assets, along with insurance policies, paints a bleak picture.

For her R161 677 in liabilities, she has no assets.

She cites economic factors – including interest rates – and aggressive marketing as factors for her over-indebtedness.

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CASE 3: Unemployed

Quanita*, 28, is an unemployed, married mother of two young children.

She has a total of 12 accounts – which do not include bond or vehicle finance repayments. Although Quanita is unemployed, she receives a R3 000 monthly income. She stopped working to stay home and raise her children.

Her living expenses, which include educational fees, groceries and a telephone, total R1 600. She is left with R1 400 to service her monthly instalments which amount to R3 150. Her total debt is R67 128.

Quanita has three loans totalling R33 162; two credit cards with a combined balance of R12 000, and seven store cards on which she owes R21 964.

Her assets include a vehicle and insurance policy.

* Not their real names.

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Counselling can wipe slate clean

Debt counselling as a profession came about with the promulgation of the National Credit Act in 2007.

Debt counselling offers an alternative remedy to over-indebtedness to the traditional methods such as administration and sequestration.

Any consumer can apply for debt counselling. If a consumer is found to be over-indebted, the debt counsellor will notify all creditors and negotiate with them in an effort to get the term of each credit agreement lengthened and/or the instalment reduced.

All monthly debt obligations will then be consolidated into one monthly instalment that will cover all obligations under the debt review.

Since inception, in excess of R2 billion has been paid over to credit providers through the process of debt review.

As soon as the consumer has settled all obligations in terms of the debt review, the debt counsellor may issue a clearance certificate, indicating that the consumer is now rehabilitated.