Pound of Flesh

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Cash, card or kidney?

Are South Africans the biggest borrowers in the world? The World Bank says yes. And our own consumer credit stats don’t paint a pretty picture: There are over 25 million active credit consumers, and 40% have impaired credit records. Crunching the numbers shows shrinking employment, growing debt, and millions of active garnishees that could trigger a debt trap.

Alarmingly, South Africa has more people who owe money than people who earn it: Yes, around 16 million South Africans have jobs, while 25 million South Africans are credit active. There are around 9 million more people who owe money than people with jobs; That’s roughly the population of greater Joburg.

Personal credit impact

As a rule of thumb, financial advisors say you should try keep your debt commitments to one-third of your income. So, if you earn R20 000 a month, then your repayments should ideally not exceed R6000. If you can’t afford to maintain your debt, and have to borrow further to pay off existing commitments, you run the risk of entering into a debt spiral and getting stuck in a loop of growing debt.

Although mortgages (or “bonds”) make up the bulk of the national debt book by value, credit facilities (credit cards, overdrafts, store cards etc) make up 65% of our credit accounts, and unsecured credit a further 14.6% when viewed by type.

Despite tougher affordability requirements and large-scale efforts to educate consumers, credit use in the country is outpacing employment growth, and the over-indebted gap is widening.

More about SA’s debt crisis

Cruel Collections

There’s evidence that many South Africans are failing to responsibly manage their debt – and some credit providers aren’t doing their job properly in assessing how much credit you can afford. Whatever the reasons, when you miss several payments or stop paying what you owe, credit providers can go to court to get a judgment against that debt. This could result in them seizing your assets – literally walking into your home and taking your car, fridge or TV – to sell to recuperate what you owe. Or they might take out a garnishee order on the debt.

How does a R1000 loan turn into almost R15 000 owing?? This is a real example of a real debtor experiencing gouging legal fees on the collection of a personal debt. We sometimes see these fees come into play in garnishees. A garnishee is an informal name for an emolument attachment order (EAO). This is a court order served on your employer, compelling them to pay the creditor directly out of your paycheque. These are notorious in South Africa for abuse and mismanagement such as faked consent forms, too much interest being applied, and extortionist fees being added on. And they can trigger a catastrophic debt trap for the credit consumer which keeps them locked in debt for decades.

There are millions of active garnishee orders in South Africa today, but no one knows exactly how many. It could be as high as five million. Although a recent ConCourt ruling (and subsequent changes to law) has tightened up the legal procedures around garnishees, significant loopholes remain that are still being abused today.

More about garnishees and your rights