South Africa is heading towards a debt bubble with many consumers spending most of their disposable income to service debt.

The National Credit Regulator’s second-quarter Credit Bureau monitor has revealed that consumers have debt amounting to R1.9 trillion as of June 2019.

Experts believe that some of this debt has been offered recklessly without accessing consumer’s level of indebtedness.

Many consumers are battling to cope with the high cost of living; soaring electricity, water, food, and transport costs are adding to the burden. Credit providers are capitalising on this by offering them credit that they cannot afford.

Some consumers see this as a quick fix to deal with their financial problems and do not scrutinise the interest they are being charged.

There are about 25.10 million credit-active consumers and about 10.23 million consumers have impaired records; meaning they are three months in arrears with their repayments.

Octogen Financial Services Director, Paul Slot says consumers are living beyond their means.   “There is no question that those consumers are living beyond their means and there is a belief that one additional loan would solve their problems.”

According to recent research conducted by Financial service company Octogen, consumers spend about 63% of their after-tax income to service debt and spend only 5% on financial services such as insurance and medical aid. 32% of their income goes to household expenditures such as groceries and transport.

Slot says that some people even resign just to access their pension funds. “The cost of living is increasing every day. The petrol price and electricity prices and there is an existing debt that they have and some even resign to get their pension funds.”

Consumers spend about 75% of their annual income to service debt.

Octogen says it has seen an increase in the number of people applying for debt review. A debt counsellor can negotiate a better interest rate for you with your credit providers, but you cannot take on more credit when you are under debt review.

Slot says some of the credit offered to consumers is reckless.

“I think reckless lending has not been pursued for many years and in terms of the NCA Amendment Act, this has to be done.”