If you are regularly using a credit card, overdraft or short-term loan to pay for groceries, electricity, transport or other everyday expenses, your household could be caught in a cycle of “survival borrowing”.
DebtBusters‘ Q2 Debt Index shows the number of new debt counselling applicants with one-month “payday” loans has reached a record high of 63%.
Nearly all new applicants now have a personal loan, while multi-lender borrowing, where consumers have multiple credit agreements, is at its highest level since the Debt Index was first compiled in 2016.
Rising essential expenses, including electricity, rates, transport and school fees, are putting additional pressure on household budgets.
What is survival borrowing?
Survival borrowing happens when households repeatedly use credit to bridge the gap between their income and ordinary monthly expenses.
René Moonsamy, chairperson of the National Debt Counselling Association, says there is an important distinction between borrowing for an unexpected emergency and needing debt every month.
“There is a fundamental difference between borrowing R2,000 to deal with an emergency and borrowing R2,000 every month because your income doesn’t cover your expenses. The first may be a temporary financial setback, but the second suggests your household budget is structurally unaffordable,” says Moonsamy.
How survival borrowing becomes a debt trap
Repeated borrowing creates another problem: repayments eat into the following month’s available income.
This leaves even less money for expenses and could result in another round of borrowing.
“The problem with ‘survival borrowing’ is that it can soon spiral into a debt trap,” Moonsamy explains.
“You start the next month with less disposable income because you have to repay what you borrowed in previous months. If you can’t increase your income, then you may be forced to borrow more to cover the shortfall. The cycle continues, with an ever-increasing proportion of your income going to repay debt, until it becomes unsustainable.”
Using long-term savings, including two-pot retirement withdrawals, to cover ordinary living expenses is another warning sign of a recurring gap between household income and expenses.
Signs you could be borrowing to survive
Some of the patterns that could indicate survival borrowing include:
- Regularly using credit for essential monthly expenses
- Taking personal or payday loans to make it through the month
- Borrowing again while still repaying previous debt
- Holding credit agreements with multiple lenders
- Using long-term savings for everyday living expenses
- Having less disposable income each month because of debt repayments
When should you get help with debt?
Moonsamy says consumers who recognise these patterns should not wait until they have missed multiple payments before seeking assistance.
“The sooner you act, the more options there are to deal with debt. In some cases, reviewing the household budget could be enough to relieve temporary pressure. Where appropriate and genuinely affordable, consolidating expensive debt may reduce costs or simplify repayments. If you are overindebted, debt counselling provides a regulated way to restructure qualifying credit agreements according to what you can realistically afford.”
Is all debt bad?
Moonsamy says survival borrowing should also be distinguished from credit used for planned or productive purposes.
“The prevalence of survival borrowing and the likelihood of it becoming unsustainable supports a perception that all credit is bad. Productive borrowing, with a clear purpose, and where the benefit justifies the cost of the credit, is not.”
Examples include financing a vehicle to access greater economic opportunities, investing in education or skills, or starting or expanding a business.
However, the borrower still needs to afford the repayments and receive an economic or financial benefit that outweighs the cost and risk.
Taking out a loan to start a business does not automatically make it productive if the business fails. Similarly, financing a vehicle to take a better-paying job further from home does not deliver that benefit if the job does not materialise.
“Credit is a financial tool whose value depends on its purpose, cost, affordability and whether the borrower can afford to repay it without taking on more debt.”
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