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More and more people battling to pay their bills

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Ability of more than four million people with impaired credit records to repay their debt has decreased

The pressure on cash-strapped consumers is expected to intensify. File picture: Oupa Mokoena / African News Agency

WITH around eight million employees not working due to Covid-19 restrictions, the ability of more than four million people with impaired credit records to repay their debt has decreased, says the compilers of Transaction Capital’s Consumer Credit Rehabilitation Index.

The index measures the financial rehabilitation ability of consumers in debt default.

There were 25.2 million credit-active consumers at December 31, but 10.7 million of them had impaired credit records.

Transaction Capital’s index samples about four million consumers in default from a proprietary database.

The second quarter results showed consumers’ propensity to repay debt deteriorated by 2.6% compared to a year earlier, and 2.5% compared to the first quarter.

Transaction Capital chief executive David Hurwitz said long-standing weak economic conditions had been exacerbated by the Covid-19 crisis.

Unemployment increased to 30.1% in the first three months, from 29.1% in the fourth quarter, and household debt levels were probably even higher than the 72.8% at the end of last year, contributing to a deterioration in consumers’ propensity to repay debt.

“Consumer sentiment is weak; employment remains under pressure; and key consumer support measures (such as the temporary employee relief scheme and debt repayment holidays) will expire in upcoming months – all adversely impacting the consumer’s ability to service debt,” Hurwitz said.

He said pressure on consumers was expected to intensify.

A TransUnion survey of consumers from July 1 to July 6, released this week, showed that fewer consumers reported being negatively financially impacted by Covid-19 compared with the June survey. Eighty percent reported a negative impact this month, down four percentage points compared to last month.

Despite this, job loss had increased substantially since TransUnion began conducting its surveys, and this month 17% of impacted consumers reported losing their jobs, up from 10% in the June survey.

The survey showed the younger population was hardest hit with 19% of impacted millennials reporting having lost their jobs and 17% of Gen Zs reporting job loss.

In previous surveys, rent and utility payments were the two bills consumers were most concerned about. 

However, this month, the top two bills were retail/clothing accounts and personal loans. Almost 38% of affected consumers said they were paying only a partial amount towards debt repayments they could afford. At least 37% were dipping into savings.