If you’re a South African, chances are you’ve got credit with one of the many banks and other providers offering anything from loans to credit cards, furniture and store credit. This also means you may have found yourself in hot water, trying to pay back money you’ve spent which you couldn’t afford.

Indeed, when it comes to financial literacy, saving and dealing with budgets, South Africans really aren’t that clued up. A report by the World Bank found that South Africans were the biggest borrowers in the world in 2014. This is a worrying trend if you have family in South Africa, or it may even be that you struggle with debt yourself. Unfortunately, even those of us who are more clued up about money can find ourselves in over our heads with debt.

According to psychology today, people find the process of buying on credit less painful than handing over cash for payments. An even greater red flag is the fact that consumers may associate high credit limits with future earning potential and these limits make purchases seem small in comparison; something which is quite alarming.

Lucky for us, the National Credit Regulator (NCR) is aware of South Africans’ trouble with debt, and has told credit providers to pull up the proverbial socks and determine whether customers can, indeed, afford their monthly debt repayments.

Legislation to protect the South African consumer

Essentially the new regulations will force credit providers to request customer documents such as recent payslips or bank statements as well as detailed reports from the credit bureaux before credit can be granted.

And getting around affordability regulations will take more effort than simply ticking or unticking a box or two. The NCR has also stipulated set minimum necessary living expenses which must be included in affordability calculations.

The categories to which these minimum monthly expenses apply are:

  • Food
  • Accommodation
  • Transport
  • Water
  • Electricity
  • Medical
  • Maintenance

The minimum monthly expense for each category is determined by the individual’s monthly income. A customer within a certain income bracket needs to spend a set amount on these expenses every month. Of course, the customer can stipulate whether someone else covers these expenses and the same goes for their records at the credit bureaux, but the NCR hopes to curb reckless lending and consumer indebtedness through these calculations and questionnaires.

The regulations may also see consumers become more aware of their actual income and expenditure, as life with debt may have made them lose touch with the reality of their financial situation.

Taking charge of your finances

As a financial services provider, we always urge our customers to take charge of their finances and nip careless spending in the bud. Essentially this means paying off that debt, closing your accounts and opting, instead, for a thorough investment, savings and retirement plan.

There are several ways to do this. South Africans living abroad can, for instance, free up some money by transferring your retirement savings offshore – something which often yields a significant cash boost. Additionally, smart foreign exchange will help you get the best rates for your rands and vice versa. Feel free to speak to us if you want to know more.

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