April resonates in the history of South Africans as the month that saw the first democratic elections in 1994, giving birth to freedom. While we celebrate freedom in South Africa, the sad reality is that we cannot run away from the desperate financial situation and the credit crisis the majority of South African workers face. South African workers are not enjoying freedom to the fullest if they are drowning in debt. Even after more than 20 years of democracy, South Africa is ranked No. 1 in the world when it comes to debt, according to the report issued by the World Bank.

The serious financial stress experienced by workers can manifest itself in many ways. Some resign from employment to access their pension fund to free themselves from the bondage of debt. Whilst it may seem like an attractive option to relieve their day-to-day debt stress, they are effectively robbing themselves of their future security. Others are simply not productive at work as financial troubles leads to fatigue and depression which follow them to work.  Research shows that financially distressed workers spend a large percentage of their time at work worrying and dealing with financial issues instead of working.

The Credit Ombud, Mr. Nicky Lala-Mohan, is concerned about the ordinary workers and man in the street considering the state our economy and the impact resulting from the recent downgrade of South Africa’s credit rating to “Junk” status. The rising petrol prices give rise to increases in food prices and transport costs and overall this is not a good picture for the workers. “It leads to greater frustration as they start relying on more credit to purchase either necessities such as groceries or things they cannot afford, resulting in more bills, more debt and more interest that have to be paid at the end of each month”, he explained.

The Credit Ombud has interacted in recent months with many consumers and held workshops with Municipality workers, Department of Education workers, Department of Health workers, Department of Human Settlement workers and Department of Infrastructure workers. The kinds of complaints we receive relate to:

• Garnisheed salaries which leave many workers with little or no net pay at the end of each month
• Declined credit applications due to impaired credit records (blacklistings)
• Debt collection issues of prescribed debt
• Identity theft where fraudulent accounts were opened using the identity of the consumer

Lala Mohan explains that the typical debt problems the South African workers find themselves in are:

• Funding essentials with credit – an example is buying food and petrol on credit which could be an indication of the workers’ struggle to make ends meet
• Funding debt with debt – this is the surest way to fall into the debt spiral
• Relying on numerous short term loans – these are very expensive as they charge high interest rates and again is a sign that the person is struggling to make ends meet
• Inability to manage their debt – workers bite off more than they can chew due and then they start missing payments and fail to handle their finances to their benefit – this can then lead to debts being handed over, debt collectors starting to call at all hours and overall debt stress
• Lack of understanding their contracts, terms and conditions and consequences of defaulting on a credit agreement

Lala Mohan says that the danger is that some workers, due to impaired credit records are declined credit by registered lenders and end up turning to unscrupulous and unregistered lenders who could charge exorbitant interests and fees and have questionable collection methods.  This may include the illegal retention of identity documents, Sassa and bank cards and sometimes even the use violence as a means of collecting money.

Recently the office of the Credit Ombud assisted a struggling single mother facing debt problems.

“Ntombi * explained her situations as follows:

“I am desperate for some assistance regarding my credit.  I am struggling immensely with trying to pay my credit cards, overdrafts and loans and just do not know who to turn to.  I am a single mother of 2 children, 20yrs and 17yrs. I am an ITC (Independent Travel Consultant) and work on my own. I also have 2 other jobs which I do but just cannot make ends meet, I have obviously taken loans out and used my credit cards to the max due to all the above and obviously, the cost of living.  I do not have a fixed income due to the nature of my business so am starting to fall behind on all my payments, which I do not want to do.  I just have no idea who to turn to as it does not matter whether you speak to the banks or not, they just continuously harass you every single day for their payments, which I do understand as I owe them the money and am very prepared to pay my loans back, however, I just cannot afford the amounts they are asking and am finding it extremely difficult to discuss it with them.  I have not incurred any additional debt this year and am trying my best to pay it off, but am just not getting anywhere due to the high interest rates being charged so it just feels like I pay only the interest and nothing else and it just gets harder and harder every day.  I can also pay in small amounts and not the full amount at once due to me working on a commission basis, so never know when I will be paid or how much, but I have been paying all the time.”

I have absolutely no money left to feed my kids, and then sometimes if a client pays me for an air ticket, that amount will just be taken off these payments, so then I am unable to pay the clients air ticket to the airline, so it is a very serious situation and is forcing me to stop my job as I cannot put my clients into this situation at all”

It is killing me and I am working so hard, 7 days a week to get by, I just cannot do any more.  I do understand that I should not have taken out all the loans and credit cards, but had no option at the time and when a ‘lifeline’ is thrown to you at the time when you most need it, the consequences are rarely fully taken into account I suppose., I can’t do it anymore and just so scared of not being able to support my children and to survive. I have nobody else to turn to.

The very hard-hitting facts of the above case is typical of the debt crisis our workers are in and which is the equivalent of financial bondage. Circumstances and low income levels often makes it difficult to get out of the trap resulting in debt collection steps, constant calls leading to embarrassment, depression and sleepless nights.

With some employers being legally entitled to check potential employees’ credit records as part of their recruitment processes on the one hand, and the debt crisis resulting in many workers being negatively listed (blacklisted) on the other hand, it exacerbates the unemployment rate in our country and prevents workers seeking better employment opportunities.

As we celebrate worker’s day on 01 May, the Credit Ombud gives the following tips for the workers of South Africa:

• Differentiate between good and bad credit – not many of us can afford to buy everything cash and we rely on credit for big purchases such as houses and cars. It is therefore important to understand the kind of debt you are taking out.
• Know when something is a ‘Need’ and when it’s a ‘Want’
• Take control when you get into trouble – don’t wait, communicate! Don’t let the lender think you are running away from the debt. Communicate with them and negotiate to pay a lesser amount on your monthly repayments if possible.
• Make the decision to stop borrowing – the more you borrow the more you pay back and if you do not meet your monthly repayments, you end up paying more interest on top of what you were already charged.
• Know where to get help. Be careful where you seek assistance as some ‘debt assistance’ places are unregistered and some consumers end up being victims of scams. Places like Ombudsmen offices offer assistance to workers for free.

Consumers can contact the office of the Credit Ombud for FREE assistance if they experience any issues relating to credit agreements with non-bank credit providers such as the clothing and furniture retailers as well as micro-lenders, fraudulent listings, emolument attachment orders (“garnishee orders”) or general complaints about their credit bureaux listings. The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a sms to 44786 and we will call you.

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If you would like more information about this topic, please contact Salem Dyafta , Public Relations Manager at 0792243802 or email at sdyafta@creditombud.org.za.