Stretching your Property credit line

Stretching your credit line

Consumers owe as much as three quarters (75%) of their monthly earnings to creditors, according to a BusinessTech story published last August in which debt management company, Debt Rescue, was quoted.

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Similarly PayProp CEO, Louw Liebenberg, notes that when consumers are stretched financially, most seek out short-term debt to ease the burden. Currently, this means that the average tenant has eight store (Credit Provider Association) accounts and three loan (National Loan Register) accounts.

The average cost to consumers to repay these accounts is R10,620 per month, which is 43% of the average tenant’s after-tax earnings of R24,442.

If consumers were able to balance their debt obligations with their ability to manage their credit, that would be acceptable, says Liebenberg.

But the reality is that instead of reducing their level of debt, consumers are increasingly dipping into their available credit resources.

In a sample of 20,000 prospective tenants, PayProp found they have used up almost 70% of the available credit that has been provided to them.

This means that their ability to absorb any economic life shocks is vastly limited.

And considering that after debt repayment, their next largest financial commitment is rental, which is R6,576 (or 27% of a tenant’s after-tax earnings) on average.

Author: Meyer De Waal