South Africans are falling into a trap

Easy access to credit and lifestyle pressure are pushing young South Africans into bad debt, which can lead to long-term financial strain, damaged credit records and delayed wealth creation.

According to Eighty20’s latest credit report, South Africa’s total loan balance increased by 0.8% quarter-on-quarter, reaching R2.6 trillion in the third quarter of 2025.

Overdue balances, however, decreased by R3 billion (1.4% quarter-on-quarter), down to R212 billion, bringing the proportion of overdue debt down to 8.1% of total loan balances, down from 8.3% in the second quarter.

The credit active population continued to grow during the third quarter of 2025, increasing by 3.94% year-on-year. Total overdue balances also increased, up 9% year-on-year to R212 billion.

Despite this, the share of credit active individuals with at least one loan in default (three or more months in arrears) decreased 6% year-on-year. However, it remained high at 40.4%.

While all South Africans are susceptible to falling behind on their repayment obligations and getting stuck in a cycle of debt, young South Africans are particularly vulnerable.

This was explained by Investec’s Lending Product Owner, Keshnie July, and Credit Risk Consultant, Lehlogonolo Ramushu, on the Everything Counts podcast.

July pointed out that the transition to adulthood can be challenging, as young people must learn how to budget, track their spending, and navigate peer pressure.

These factors make it easy for young people to slip into a cycle of bad debt, which can be very difficult to escape.

“There’s also a narrative that says if you want access to credit, you need to have a credit profile,” July said. However, she stressed that South Africans should not go “guns blazing” into building a credit profile.

Getting stuck in the debt cycle

“It’s important to understand your financial needs and take out what you actually do need and not just feed into the lifestyle pressure or peer pressure,” Ramushu said.

In some cases, young people may need to take on debt to finance expenses such as relocating for work or university costs.

However, taking on debt without proper consideration for future credit, an overall credit profile, and monthly cash flow can set South Africans back significantly in the long term.

“We tend to forget that this type of debt comes with high interest rates, and as a result of that, it becomes very expensive for you to actually repay it at a later stage,” Ramushu said.

Adding to the difficulty of avoiding bad debt is the ease of access to unsecured loans, such as credit cards, personal loans, and overdraft accounts.

Young people may be bombarded with loan advertisements on social media, buy-now-pay-later options when shopping online, or even push notifications from their banking apps offering higher credit products.

Taking up these loans can be done in a matter of minutes, or even less. The convenience of these offers makes them seem even more tempting. However, while these loans may be accessible, they can quickly become unmanageable.

“You take one today, and it puts you in a tight position next month, and then it becomes easy to take out another one to settle the other one, and before you know, it can become a cycle,” Ramushu said.

Taking out too many unsecured loans could also hinder South Africans from achieving their long-term goals, such as buying their dream car or home, Juy warned.

This is because this habit reflects the person’s payment profile, behaviour, and budgeting habits, which are factors banks consider before lending money.

Avoiding the debt trap

To avoid falling into a cycle of bad debt, July advised young South Africans to have a monthly budget wherein they manage their monthly expenses.

This will allow them to prioritise necessities over luxuries and give them a clear view of how much they have available to put towards debts, such as a home, car, or personal loan.

Before taking out a loan, she urged consumers to consider the associated costs they will incur. For example, when buying a car, the loan repayment amount is only one part of what the consumer will be spending every month.

They will also need to cover costs such as insurance, fuel, a maintenance plan, cleaning services, and wear and tear.

The same is true when buying a home. Homeowners must pay for expenses such as insurance, repairs, utilities, and transfer costs.

Those buying properties in sectional titles will also likely need to pay levies, which can be quite a large monthly expense.

South Africans should also consider the interest rates they will be paying before taking on any new debt, July added.

“Is it competitive? Have you shopped around? What is the total value of the loan that you’re actually going to pay over the term of it?” she asked.

“When we look at the monthly instalment, we think it’s doable, but when you look at the total loan – the capital plus interest – it’s a lot over a period of time.”

She encouraged those who want to create wealth to put extra money towards paying back their loans quicker, as this will allow them to put their money towards investments rather than debt servicing.