Cape Town - Deeply indebted consumers should not view South Africa's unchanged credit rating by S&P as a reprieve to go on a spending spree.
This is the message from Neil Roets, CEO of one of South Africa’s largest debt management companies, Debt Rescue.
S&P on Friday decided to keep South Africa’s credit rating at the same level – one notch above junk status - but it warned that the country's deteriorating economic climate could lead to a junk status at their next rating announcement towards the end of the year.
“The majority of economists that we speak to are unanimous in their view that junk status is almost certainly going to be announced by Standard and Poor’s with the other ratings agencies short on their heels.”
Roets said the economic situation remained dire with major price increases working their way through the economy thanks to the prolonged drought and the declining rand.
According to a recent Debt Rescue study, only about 23% of South Africans have money left at the end of the month before their next payday.
The study finds that 86% of South Africans borrowed money in the year 2014. It also finds that South Africans between the ages of 31 and 45 collectively owe 53% of all outstanding debt in the country.
“Data from the South African Human Rights Commission (SAHRC) shows that, of 19 million credit active consumers in South Africa, over half have impaired credit records, three months plus in arrears.
“More than 11 million of South Africa’s credit active consumers were described as over-indebted by the SAHRC.”
Roets said Debt counselling remained the best way for consumers to manage their debt load by negotiating with creditors and paying off their debt in smaller instalments over a longer period of time.
“None of their assets may be attached by debt collectors while they are under debt review,” Roets said.
Compuscan’s credit expert, Jack Brownrigg said while S&P's announcement comes as a relief, the situation remains one that has negative ramifications such as continued food and fuel price hikes, job losses and a weakening rand.
"“While we didn’t receive the bad news that many had anticipated, it remains a critical time for South Africa – time to put our best foot forward and to step away from the threat of future downgrades," he said.
"I believe that we’re able to do so, but in order to turn South Africa’s economic situation around, we need to focus on a few important factors, we need to put words into action and we need to be sure that these are positively recognised by the three international rating agencies.”
* Add your voice by sharing your debt experiences, debt-busting tips and insights. Have a question? Ask our experts.