Despite SARB's stable rates in February 2024, South Africans face worsening credit issues, Rynhardt de Lange of Milaw Legal provides strategies for recovery.

21 February 2024: Earlier this month the South African Reserve Bank announced that there will be no change in interest rates for February 2024, offering relief to those recovering from last year's five hikes and facing lingering credit challenges in the new year.

However, the latest data from the National Credit Regulator (NCR) and the Credit Bureau Monitor (CBM) reveals a worrying increase in the number of impaired accounts, rising to 19.29 million. This uptick signals a deeper issue in the economic wellbeing of the nation, against a backdrop of a difficult year and rising interest rates that have pushed many to the brink.

This is according to Rynhardt de Lange, Director and Head of Legal at Milaw Legal who said South Africa is facing a growing challenge with credit impairments as more consumers struggle to keep up with their financial obligations. He said this was unsurprising, particularly at this time of the year when with inflation at 5.1%, food prices increased by an average of 8.1% in December 2023.

“Even with a pause in interest rate hikes as of February 2024, the fallout from a tumultuous 2023—with interest rates reaching as high as 11.75%—continues to weigh heavily on South Africans. This financial pressure is exacerbating the struggle to meet payment obligations, leading to a spike in the number of people unable to maintain their credit standings,” said de Lange.

"The increasing trend in credit impairments is a stark indicator of the mounting financial pressures faced by consumers. Understanding the implications of loan defaults and identifying viable pathways through these challenging times is more critical than ever," he said.

He reiterated that credit impairments derived from failing to keep up with loan payments, especially on personal loans which are unsecured and based on credit scores, can have severe consequences, including potential legal action and significant damage to one’s credit score.

"The consequences of failing to pay back a personal loan can be worrying, mainly because they can significantly harm your credit score. Personal loans are a type of unsecured loan, which means they don't require you to put up any collateral (like a house or car) to secure the loan. Instead, lenders assess your credit score to decide how risky it is to lend you money. This means having a good credit score is crucial for getting approved for a personal loan," said de Lange.

To counteract these financial challenges, de Lange recommended a series of proactive steps to manage debt effectively:

• Revise Your Budget: Look for ways to cut back on expenses within your budget.
• Consider Debt Consolidation: Combining several debts into one loan with a lower interest rate can make repayments more manageable.
• Communicate with Lenders: Directly negotiating with lenders can lead to more favourable repayment terms.
• Seek Debt Mediation: Professional debt mediators can help negotiate better terms with creditors on your behalf.
• Look for Additional Income: Generating extra income through part-time jobs or selling items can provide financial relief.
• Build an Emergency Fund: Establishing a safety net can help absorb unexpected financial shocks.

“In the face of South Africa's escalating credit impairment crisis, it's imperative for consumers to take action. My recommendation is to arm yourself with knowledge and adopt a proactive approach to managing your debts. This is not just about understanding the crisis; it's about what you can do today to navigate these challenges. By actively engaging in your financial recovery, you pave the way toward regaining your financial health and resilience. It's within your power to turn the tide on your financial situation,” said de Lange.

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About Milaw Legal

Milaw Legal is a debt management company committed to empowering South Africans in their battle against debt. With over a decade of expertise in financial services, the organisation offers a range of high-calibre debt relief services tailored to meet each individual's unique needs, including debt review removal, judgment removal, and affordable distribution. Guided by values of integrity, empathy, and innovation, Milaw Legal provides personalised and comprehensive legal services, ensuring clients achieve financial stability and long-term success.