Consumers Curb Debt

Staff Writer @ Lucid Living

Consumers are focusing on paying off their debt and there has been a marked shift away from credit cards and overdraft facilities.

Although the banks were showing an increase of 39% in unsecured lending, much of this credit extension was being driven by debt consolidation, said Sugendhree Reddy, director of banking products at Standard Bank.
In the bank’s experience about 30% of customers are using fixed-term debt to pay off their credit cards and overdraft facilities.

“Consumers are now looking at unsecured products with fixed repayment terms because many were ‘burned’ in the previous ­economic downturn, using incidental credit like credit cards and overdraft facilities,” said Reddy.

This enables customers to consolidate their debts and set a time frame for paying them off. By closing their credit card and overdraft facilities, they are preventing themselves from taking on further short-term debt.

FNB chief executive Michael Jordaan said customers had become far more aware of costs and were consolidating their high-cost credit card debts with less-expensive fixed-term debt.

Reddy said Standard Bank’s bad-debt experience on credit cards was lower than expected and customers had a definite lack of appetite for credit cards. Many people were turning down the option to raise their credit limits and there was an increase in the number of people who settle their credit card balances at the end of the month.

Consumers are also focusing on building savings, and the market share of deposits for the banking industry has increased by 6.1% in the past year. Reddy said this had taken place across the income spectrum.
“People have realised after the financial crisis that they need to take responsibility for their finances. The education around these issues is also paying off,” said Reddy.