Why people get into debt

Nearly 30 000 debt judgments involving a total of R388.6 million were passed in South Africa in April according to Statistics South Africa.  Some 72 003 summons for debt were also issued in the same month.

South Africans are increasingly pressure as the debt crunch catches up with them. According to the National Credit Regulator, 189 000 joined the ranks of bad debtors in the first quarter of this year.

There were 20.08 million credit-active consumers at the end of March. Those with bad debts increased stood at 9.53 million.

Despite this appalling picture there were 15.26 million enquiries from consumers seeking credit during the period.

The question, most people would want to know is: Why do people get into debt?

Author Danie Vorster says one of the major reasons why people get into debt is that they live their neighbours’ lives. They compete with people without knowing what the other person earns or how the other person sustains him or herself.

People land in debt because they are obsessed with success. We all want to be successful or at least to be seen to be successful.

“It is often not the person from a wealthy background who is obsessed with success, but rather the one from a modest or poor background,” Vorster says in his book: Debt-trap or Debt-free.

Vorster says other reasons why people get into debt are:

• Greed, bad habits and weak self-discipline.
• Some people live lifestyles that they cannot afford because they want to be seen as wealthy.
• Living to other people’s expectations. Some people get into debt to live the kind of lives that people expect them to live and where they expect them to live.
• Hunger for power and recognition.  These people want to use money to gain power and to be recognised as the rich and end up in debt.
• Weak self esteem.  Some people think so lowly of themselves that they surround themselves with all sorts of tangible possessions to give the impression that everything is OK.
• Unhappy or deprived childhood. Some people who grew up poor surround themselves with all sorts of things - houses, cars- bought on credit to give the impression that they have made it in life.

The major problem with debt, Vorster says, is that it turns you into a slave. You are always one step behind, “.using today’s limited resources to pay off yesterday’s long forgotten privileges”.

Our book: How to buy a house for half the price has a full chapter on getting out of debt.

Nearly 200 000 join the ranks of bad debtors

The credit crunch is taking its toll on South African consumers with 189 000 joining the ranks of bad debtors in the first quarter of this year, according to the latest report from the National Credit Regulator.

The number of consumers in good standing fell to 52.5 percent, the lowest in the three years under review.

The NCR said the number of credit-active consumers increased from 19.97 million in December 2012 to 20.08 at the end of March but the number of those in good standing decreased by 76 000 to 10.55 million.

Those with bad debts increased from 9.34 million to 9.53 million, also the highest over the three years.

Despite this appalling picture in which more than 2.7 million had judgements and pending orders the appetite for credit is on the increase.

There were 15.26 million enquiries from consumers seeking credit during the period.

How to buy a house for half the price!

This no gimmick! You can indeed buy your house for half the amount that you are expected to pay if you do not do anything. Say for example, you get a loan for R500 000 today, you have to repay it at R4 340 a month over 20 years. You will end up paying R1 041 390.

My book shows you how you can pay half this without stretching yourself. For example by adding just R100 a month you save R36 000. If you roundup your bond payment to R5 000 a month, you cut your repayment period by five-and-a-half years.

Phindile Kunene, editor of the COSATU magazine, Shop Steward, said in her review of my book: How to buy a house for half the price.  Said: “How to buy a house for half the price is a must read for all South Africans, especially those who fall outside the State low cost housing subsidy net. It is an important and timely book given the demand for housing amongst young black South Africans who either resort to buying homes through finance capital or to renting town house complexes in the country’s suburbs,” Kunene said.

“It is particularly relevant when considering how banks muzzle and rob thousands of South Africans of their right to decent housing by evicting defaulters and repossessing hundreds of homes yearly.

“This book is an empowering tool for those currently facing the might of finance capital.  It can teach you how to play the game to your benefit; how to beat the banks at their own game and how to maximise the gains out of a situation that is not designed to favour you. This alone, makes the book a good read.”

The book, which is written in simple language for anyone who can read English to understand looks at the housing situation in South Africa and the fact that the government, despite its good intentions, can never meet the housing demand.

The waiting list is growing longer and there are now approximately  8 million people living in informal settlements.

It also looks at:

• Whether to rent or to buy and the advantages of buying over renting
• How much bond one qualifies for, that is the maximum amount a bank can give you based on your income and how you can calculate this for yourself
• How to get out of debt and what the debt situation is like in South Africa (South Africans owe more money than Finance Minister Pravin Gordhan set aside to run the country this year)
• How to save for your first house, the important point being that saving has nothing to do with how much you earn but how you use what you earn
• Buying your first house, what is required, payments you have to make besides the deposit for the house such as transfer fees and bond registration
• Buying a flat which you have to do on what is called sectional title and what this entails
• Buying land to build your own house, the advantages and disadvantages one of which is that normally it is more expensive to build your own house than to buy an existing one
• How to save thousands on your bond by making simple incremental payments on your bond. An extra R100 a month on a R300 000 bond for example will cut your 20-year bond by 21 months- yes, one year and nine months.
• Saving millions- how lump sum payments will cut your repayment period even further. If you decide to pay your annual bonus of R9 000 on a R300 000 bond and continue to make your usual monthly payments, you will pay off your house in 11 and a half years instead of 20.
• Kunene was not alone in her praise of the book.  Justice Nicholas Ndou, a former Senior Legal Advisor to the Gauteng Provincial Legislature and former Secretary of the Limpopo Provincial Legislature, had this to say:

“This concise and simple yet comprehensive guide to owning a house or shelter is a fundamental tool in the search for and the acquisition of an affordable decent home. It is trite that although the concept of privately owning a house is today regarded as fundamental, its universal acceptance is of recent origin. It was not until the 15th century that there was movement from community ownership to private or individual ownership of property like houses.

“Over the years the demand for houses has increased as the population increased. The number of people who could afford houses diminished. Speculative and other negative forces entered the fray. This resulted in a need for interventions. Charles Rukuni took up the challenge in this guide.

“As a seasoned journalist, his writing on affordable housing brings a combination of talents of journalism, social theory and practical-mindedness. He vigorously informs potential home buyers and seekers and other stakeholders that housing is recognised in international

law as a fundamental economic and social right.

“He avoids substituting illusion for reality. I am convinced that this work will be of considerable assistance to housing practitioners, students, financers of housing projects and government officials whose duty it is to deliver affordable and decent housing.”

Renowned political activist and author of Through the Darkness- a Life in Zimbabwe, Judith Todd, added her voice:

“This brilliant little book should help vastly improve your life. It's value has been demonstrated by the author himself who, starting from 1983 with very little, now owns four houses. It is a joy to read as the fundamental information and financial advice provided is spiced with wit and compassion. Rukuni really wants us all to have a secure home, the essential foundation from which to seek the abundance life should promise.”

This is what some of the readers who bought the book had to say:

“Dear Charles, I collected my book on the 26th Jan already. I came home that day and started reading, I couldn’t put the book down. So I finished reading that same night. I really enjoyed the book, and received valuable information. I just wish me and my husband bought our house much sooner than we did.”- Cynthia Jasmith-Ikaneng -Johannesburg

“Hi  Charles,  I got the book and thank you very much. I just finished reading it now (every chance I got at work I read), I’m in my early 30’s and intend to get married very soon so buying a house is one of the things that are on my mind. I must say I like the way you compiled it as it makes it very easy to understand and there were lots of things I was not aware of but now I know (thanks to you). You should see the highlighter markings I made. I will most definitely tell everyone I know about it and that they should get a copy, it’s a great guideline and I am going to apply it and I can’t wait for my girlfriend to read it when I get home.”-  Lungisa Gqirana- Kimberley.

There you have it.

The book is also available as an ebook from Amazon, which means you can download it in less than a minute once you have paid.

For companies, I believe this is an ideal present for your workers. I have a few printed copies of the first edition which I am selling in bulk in batches of 50 and above. I only have 2000 copies. I am also prepared to brand the book for you- that is, publish it in your colours.

To rent or to buy

Most South Africans have little choice about whether to rent or to buy a house. Sometimes both are beyond their means. There are not enough houses to rent and they cannot afford to buy decent houses. But things are opening up.

The government has announced that it is going to guarantee housing loans for those earning from R3 501 to R15 000 a month under its Finance Linked Individual Subsidy Programme (FLISP).

This group was excluded from the housing market because they were too rich to qualify for RDP housing but too poor to get loans from banks.

The market is now open, but the houses might not be there. Outstanding housing demand is about 2.1 million units.

With the government developing rental accommodation and houses for sale, the question becomes, which is better?

There are several calculators on the internet which one can use but I found the simple rule of thumb suggested by Michael Bluejay to be the most appropriate for most South Africans.

It is very simple. He simply suggests that if you multiply the rent you pay today by 240 and find that the amount is enough to buy a house, then buy one.

In simple language if you are paying R900 rent at the moment and you can get a house for R216 000, it’s better to buy the house.

You might ask how does he come up with 240? It’s simple, 240 is the number of months in 20 years. Most bonds are for 20 years. So when you are paying R900 a month you will pay R216 000 in 20 years.

But in real terms, very few people pay that kind of rent unless they are sharing perhaps a single room. If you pay say R1 700, which is more reasonable, then this will come to R408 000. Are you sure you cannot buy a house for this price?

Of course there are times when it is better to rent.

The same Bluejay says:

It is almost always better to buy a house than to rent. Renting is better only if at least one of the following applies:

• Your rent is lower than average—and you expect it to stay that way.
• You plan on moving in a few years.
• You're in a super-expensive housing market.
• You can get better-than-average returns from whatever you're investing your cash into.
• The house you would buy is a lot larger than what you would rent.

Once you decide to buy a house, my book shows you how you can save thousands. It is available here as a ebook and here as a hardcopy.