The office of the Credit Ombud has issued a warning that consumers need to take urgent steps to safeguard themselves from the potential financial downturn. “What we hear from consumers is that many have not budgeted and planned possible increases in prices and interest rates, and as matters stand, they are already struggling to make ends meet” cautioned Nicky Lala Mohan, the Credit Ombud. “South Africans are the leading borrowers in the world, and desperation has led to thousands of consumers taking loans that they cannot afford. If one then adds any increase in living expenses or the cost of credit, they will not be able to stay afloat.”
January sees consumers needing money for school uniforms, registration fees, stationery, transport, etc. In many instances consumers did not save the money for these costs and probably overspent in December leading to them borrowing some more. “Consumers should borrow only when they absolutely cannot make any other arrangement – e.g. paying off the outstanding school fees over the next few months and consumers firstly always need to determine whether they can afford the additional repayments,” advises Lala Mohan.
The Credit Ombud receives regular complaints from consumers who are desperate because they cannot service their debts and they do not know which way to turn. The office expects these type of complaints to increase. The result of the Rand weakening to an all-time low against the dollar and other major currencies, in addition the severe drought conditions that have hit South Africa, does not bode well for the man in the street. These and other factors will result in distressing economic times in 2016 with expected increases in interest rates and essentials, such as food prices, water and electricity, as well as imported goods.
Any increase in the interest rates will have a rippling effect on consumers’ ability to repay their debts. Most retail clothing and furniture store accounts, micro-loans, vehicle finance and home loans have ‘variable interest rates’. “For consumers to fully understand the impact of the increase in interest rate on their household budget, they need to work out how much each account’s instalment will increase by and see what the total rand value will be and we recommend that they start making provision for it in their budgets now,” advises Lala Mohan. “In addition, consumers need to continuously compare their previous statements to the latest statements, to see what the increase in the instalments amount to,” he added. .
The Credit Ombud has the following advice for consumer to consider in order to survive these tough financial times:
- Make every effort to pay off high interest rate accounts, such as credit cards and micro loans, this must be a priority
- Cut back on some unnecessary costs and luxuries in order to compensate for the increase in monthly expenses
- Ensure that you will have enough money in your bank account to accommodate the increase in debit order deductions
- Consider the possible benefits to fix some interest rates, such as your mortgage bond and vehicle financing, in anticipation of the possible additional interest rate hikes later this year
- Urgently relook your household budget and make the necessary adjustments to all the accounts to reflect the new repayments values so that you are able to meet any additional expenses, save something and pay off the credit you have accumulated
- If you run into trouble and can no longer afford your instalments, be proactive and contact your credit provider as soon as possible to avoid legal action and situations where your goods or property are repossessed or auctioned off. They may give you a grace period or agree to lower instalments. It never works to try and hide or run away and it will only make matters worse.
- Ask advice from a trusted person or organisation who is not merely looking after their own self-interest
Consumers can also contact the office of the Credit Ombud for free assistance on matters relating to problems experienced with their credit agreements; any matters with regards to garnishee orders or any unfair or incorrect listings on a credit bureau.
The office can be contacted on 0861 66 28 37 or visit their website on www.creditombud.org.za. Consumers can also sms us on 44786 and one of our consultants will call you back.