The debt trap, and how to get out of it

There are institutions which can help if you're in debt

- By NICK FABRÉ

IN JULY 2025, the National Financial Ombud Scheme (NFO) raised the alarm about the increasing number of South Africans relying on credit to cover everyday expenses.

Credit had shifted from a tool for upward mobility to "a survival mechanism for basic necessities like food, rent, electricity and transport", the NFO warned, quoting a study by TransUnion. The study found that more than 41% of personal loans from institutions other than banks were three months or more in arrears.

In 2024, South Africa had nearly 28 million borrowers, according to the National Credit Regulator. Of them, 10.9 million had "impaired credit records", 22% of whom were more than three months in arrears.

For many South Africans, credit can become a trap from which it is nearly impossible to escape.

So, what can you do to escape the trap?

Credit agreements are governed by the National Credit Act 34 of 2005. This Act places responsibilities on both lenders and borrowers to ensure responsible lending and financial health.

It introduces the concept of "reckless lending", where lenders can be sanctioned for giving loans to those who can't afford to repay them. Lenders must assess a potential borrower's financial means, understanding of credit obligations, and repayment history before providing the credit.