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Fuel hikes add to consumer debt - slowing economic engine

It is anticipated that yesterday's fuel price increase, the increase in electricity tariffs and a probable rate hike by the Reserve Bank later in the year will slow down the economic engine for South Africa, as consumers struggle to meet debt, let alone consume goods.
Fuel hikes add to consumer debt - slowing economic engine
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Debt expert Neil Roets, CEO of Debt Rescue, one of the largest debt management companies in South Africa, said the present combination of economic factors was going to severely impact on consumers. "Every single commodity consumed in this country is transported by road and the increase in diesel price is going to impact directly on the prices of essential commodities such as food, which in turn is going to hit the poor the hardest."

Independent economist Dawie Roodt said consumers should prepare themselves for tough times ahead. "We are in a catch-22 situation, where the consumer, who in the past was the main driver of economic growth, is now being placed in a situation where they will no longer be able to spend the funds needed to boost growth. This in turn is going to impact on unemployment because without substantial growth, unemployment is simply going to keep rising driving more consumers ever deeper into debt."

Roets said South Africans were already struggling to make ends meet and the latest fuel price increase is going to severely impact on their ability to service their debt load. "The overall debt that consumers have stacked up during the past several years effectively means that they owe 75% of their net earnings to creditors already. Once they have serviced their mostly overdue debt, very little money is left for essentials such as food, clothing, transport and school fees.

"The overall economic outlook remains grim, as millions of consumers are unable to service their debt resulting in ever greater numbers having to seek help from debt counsellors."

According to the National Credit Regulator's Consumer Credit Market Report, the outstanding gross debtor's book is sitting at R1.47 trillion. This represents money owed by consumers in the form of mortgages, vehicle finance, credit cards, store cards, personal loans, short-term loans, pension and insurance-backed loans.

"Debt counselling remains the best way for consumers to get out of debt in a manageable way paying off their debt in smaller instalments over a longer period of time," concludes Roets.

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