As South Africa’s economy shows signs of growth and new opportunities arise to access retirement savings through the two-pot system, now is the best time for individuals to take control of their debt, according to Sebastien Alexanderson, Head of National Debt Advisors (NDA).
The latest GDP report from Stats SA revealed that the economy grew by a modest 0.4% in the second quarter of 2024, driven by improvements in the finance, trade, and manufacturing industries. Although the transport sector struggled, household consumption saw a significant rise, signalling consumer confidence. Inflation, meanwhile, has dropped to its lowest rate in three years, with consumer price inflation falling to 4.6% in July, down from 5.1% in June.
“The economic indicators are promising, but they come with a strong call to action for those struggling with debt,” said Alexanderson. “With inflation on a downward trend and the economy showing signs of improvement, now is the time to leverage these conditions to manage and reduce your debt.”
A Financial Lifeline Through the Two-Pot System
The introduction of the two-pot retirement system, launched on 1 September 2024, allows South Africans to access a portion of their retirement savings for emergencies while ensuring long-term security for retirement. This new system has already seen a significant number of South Africans taking advantage of the opportunity to withdraw from their emergency pot.
“Many are seeing this as a way to ease their financial strain,” Alexanderson noted. “However, it’s critical to use these funds wisely, especially when it comes to addressing existing debt. While the temptation might be there to spend on non-essential items, paying off debt can provide long-term financial relief.”
Alexanderson emphasised that paying off debt, especially high-interest debt like credit cards and personal loans, should be a priority for individuals withdrawing from their retirement savings.
Debt in South Africa: A Growing Concern
South Africa continues to grapple with high levels of personal debt. Over the last year (Sept 2023 – Sept 2024), National Debt Advisors reported a slight decline (3.3%) in consumers seeking debt help, with total outstanding debt exceeding R1.47 billion (7.5% increase). On average, consumers had four unsecured debts, one credit card, and one store account.
“The figures we’re seeing are concerning,” said Alexanderson. “While fewer consumers signed up for debt review compared to the previous year, the total outstanding debt has increased, meaning people are carrying more debt than before, yet fewer are seeking help. This is why it’s so important to take steps now to address these issues before they worsen.”
Why Now is the Right Time to Tackle Debt
With the introduction of the two-pot system and a slight improvement in the economy, Alexanderson believes that South Africans have a unique opportunity to regain financial stability.
“Accessing a portion of your retirement savings should be done cautiously, but if you’re using these funds to pay down debt, you’re ultimately investing in your future. Clearing your debt not only improves your credit score but also reduces financial stress and sets you up for better financial security in retirement,” said Alexanderson advising individuals to seek professional help if they’re unsure about how to manage their debt effectively.
