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Living on the (Debt) Edge: The Impact of Covid-19 on SA’s Middle-class

More than 50% of South Africa’s 19 million credit-active consumers are already over-indebted, a fact only worsened by the pandemic and its lockdown effects on the local economy. These are recent stats released by the SA Human Rights Commission.

But what is most worrying is the stark impact on the country’s emerging middle-class, threatened by substantial income loss, rising living costs and escalating debt levels.

Fighting debt with more debt and despair

When the Covid-19 pandemic put the brakes on economic activity and industry growth to address the national health crisis, it also caused a spike in unemployment and loss of income.

The more fortunate who kept their jobs were forced to switch to short working weeks and salary cuts – if not immediately, then in the following months. The likely drop in income added more strain on the already indebted population.

As a result of job loss and pay cuts, the middle-income earners (typically earning above R20000 on average per month), who could manage their monthly debt repayments before the pandemic, suddenly found out they could not service their total debts anymore.

At ezDebt Solutions, most clients had unfortunately experienced salary reductions, which affected their ability to follow up on their debt repayment plans. Our debt counsellors also reported, on average, that 30% of clients had been retrenched since the start of the lockdown.

Sadly, we also experienced clients who had lost their lives due to Covid. This left families with one breadwinner and unable to afford the current debt review instalment.

As one of the leading debt review companies in South Africa, ezDebt is doing everything to negotiate with creditors lower instalments for clients who are genuinely acting in good faith and honouring their payments every month.

Putting up with high living costs and overspending

The nation’s middle-class is still battling to service high pre-pandemic debt and the additional fear-induced bulk buying and overspending at the pandemic onset. Add to this the increasing cost of living, food and utilities – fuel and electricity – announced in the recent months, e.g., Eskom’s tariff increases and the budgeted rise in fuel tax.

Some families had to rely on high-interest unsecured debts to cover the monthly shortfall, deepening the debt problem.

However, it is true that, overall, consumers may be more cautious about taking on further debt during the pandemic, which is a positive sign in itself. Still, it is too little to significantly curb down the country’s unreasonably high debt-to-income ratio (as high as 130%, according to various debt index reports).

As more middle-income families lose their income and battle to pay back debt instalments, ezDebt counsellors advise careful budgeting, cutting spending wherever possible and planning for rainy days, particularly if earning less than before the lockdown.

From ‘living on the edge’ to ‘living within means’

Every crisis brings opportunity. The Covid-19 aftermath, as destructive as it’s been on the economy, remains an excellent time of reflection and a chance to change for the better our financial, professional and personal lives.

Like it or not, the pandemic has forever changed the way people relate to money and work. It means no longer living on the edge for the indebted middle class but instead learning to live within its means, rethinking priorities, budgets and discretionary expenses. This includes reducing the damaging over-exposure to credit and consumer debt in general in favour of a more cautionary approach.

Professional financial consultation and debt counselling have become, over the past years, essential life-saving tools to set up affordable budgeting, rethink repayment plans, and reduce monthly debt payments.

An example is consolidating multiple unsecured debts – credit cards and personal loans – into a single debt instalment that is easier to pay monthly.  Or renegotiating home loan or vehicle financing terms to secure a lower interest rate.

With expert debt help, everyone struggling or overwhelmed by debt can generally improve their current finances and make money work in tough times.

Need help with paying off debt? Consult an ezDebt counsellor today.

Our professional debt advisers can help you stay on track with debt repayments through quick and affordable debt counselling. All our debt counsellors are registered with the National Credit Regulator (NCR). Get in touch at www.ezdebt.co.za.

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