By: Salem Nyati
Financially speaking, January is notorious for being the worst month for South African consumers, who find themselves fighting to make it to month end thanks to December’s earlier payday coupled with excessive festive season spending. And it just got worse: this January saw a second consecutive fuel price increase, meaning that consumers must dig even deeper to cover their daily commute back into the office.
This means bad news for borrowing. At the end of last year, South Africa’s Credit Stress Report revealed a growing reliance on credit. Credit-active consumers increased by 1.4% year-on-year, with credit card and retail credit balances driving 40% of this growth. Total loan balances rose to R2.47 trillion (up 2%), while overdue balances grew by a whopping R4.7 billion.
However, more concerningly, the number of South Africans who turn to informal and unregulated sources of credit in January, such as loan sharks or “mashonisas”. With banks tightening their lending criteria due to a rise in bad debts, we have seen more South Africans resort to these informal credit providers for financial assistance.
This is dangerous territory, as these providers do not adhere to the National Credit Act, which was established to protect consumers from illicit lending practices. They set their own, often exorbitant fees and interest rates – as well as debt collection tactics, which can involve intimidation, threats and even violence.
But what do you do if your bank account is empty but payday is still on the distant horizon? Know that there are other options available to you, which will be better for your finances in the long run.
· Cut where you can: Get up close and personal with your day-to-day expenses; what is essential, what is not, and where you can cut.
Typically, essentials could include food, rent, electricity and transport. Once you have a clear picture, assess the variable expenses to see where you can adjust. Perhaps this might entail shopping at a grocery store that offers better prices, forgoing some of your usual pricier food ‘luxuries’ for a bit, or pooling resources with others in your community, such as a lift club.
· Take a (payment) break: Look at existing credit obligations and request a payment break or holiday. Many credit providers will offer a payment holiday upon request, with your normal payments continuing after the agreed period and your repayment period adjusting accordingly.
Certain insurers also have a premium skip function built into their policies, where you can miss a payment while retaining a certain level of cover. This payment relief will allow you to allocate funds to other pressing expenses while not reneging on your payment commitments or tarnishing your credit record.
However, you must negotiate this upfront with your provider and stick to your agreement, as many will not look favourably on a credit holder who misses a payment without a word. This could end up costing you more – literally – in the long run in the form of higher premiums.
If you have to borrow – do it safely: If you have to borrow, borrow from a registered financial services provider that is bound by the conditions of the National Credit Act. Look for a legitimate loan with a reasonable interest rate, and seek to pay it off as soon as possible to avoid steep debt servicing fees.
Don’t borrow from unscrupulous lenders who prey on your desperation. Also, avoid providers that advertise that they don’t perform credit checks or affordability assessments – this ease of access is typically offset with steep fees and/or interest rates hidden in the fine print. And never borrow from anyone who requires you to make an upfront payment.
Clean house: Don’t be stuck in the same situation next January. Now is a good time to plan and ask, how can my money work for me in 2025?
January is a good time to revisit all your financial obligations and see where you can make the necessary adjustments that will stand you in good stead for the year ahead.
If you don’t have one already, the start of the year is also a good time to start an emergency fund, avoiding an unhealthy reliance on credit to cover basic expenses.
Most importantly, she maintains that the only way to “fix” January is by fixing December. We usually say that January has 86 days, so when that December paycheck comes in, ensure that January’s financial obligations are covered first, knowing that you can enjoy December with that is left.
* Nyati is a Momentum Group's consumer financial education specialist.
PERSONAL FINANCE