Practical steps to sidestep high‑interest debt , build credit health, and grow real wealth in 2025
Avoiding the Debt Trap: South Africa’s 18–35‑year‑olds are opening credit accounts at record speed: Millennials and Gen Z made up 62 % of all new credit originations last year, pushing the number of credit‑active consumers to 18.5 million. Yet debt repayments are devouring pay cheques: average instalment‑to‑income sits at 28 %, and for high earners it rockets to 48 %. For many, that’s a one‑way ticket to the “debt trap” — a cycle of borrowing simply to stay afloat.
Ways to Avoid the Debt Trap
1. Know the landscape before you borrow
- Youth debt is smaller, but riskier. Under‑24s hold “only” R10 billion in credit, but R1.1 billion (≈11 %) is already overdue .
- Servicing costs are crushing. A recent survey found South Africans spend nearly 70 % of their salaries servicing debt.
Take‑away: even modest borrowing can sink your cash flow fast when interest rates hover at 17–21 % for unsecured credit.
2. Spot the sneaky ways debt traps you
| Red Flag | Why it hurts |
|---|---|
| Buy‑Now‑Pay‑Later offers | High admin fees + penalty interest once the honeymoon ends. |
| Lifestyle inflation | Every salary bump funds gadgets and getaways instead of assets. |
| “Thin‑file” credit | First‑time borrowers (20 % of new youth accounts) often get the worst rates. |
3. Ten proven escape routes
| # | Action | Quick Wins |
|---|---|---|
| 1 | Build a zero‑based budget (22seven, Goodbudget) | See every rand’s job before month‑end. |
| 2 | Follow the 50/30/20 rule | Needs 50 % / Wants 30 % / Savings & debt 20 %. |
| 3 | Automate an emergency fund | Even R500 pm cushions against payday loans. |
| 4 | Choose the cheapest credit first | Reduce card limits; pay off store accounts before personal loans. |
| 5 | Use windfalls wisely | When SARB cuts rates, channel the monthly saving into extra repayments. |
| 6 | Side‑hustle for surplus | 50 % more young South Africans run gigs today than in 2021. |
| 7 | Track your credit score monthly (ClearScore, TransUnion). | |
| 8 | Avalanche high‑interest balances first, then snowball the rest. | |
| 9 | Consolidate only through NCR‑registered lenders to lock in lower rates. | |
| 10 | Ask for help early — debt counsellors, National Credit Regulator hotline (0860 627 627). |
4. Tools & resources just for SA young pros
- Budgeting apps: 22seven (free), YNAB (trial).
- Credit reports: ClearScore (monthly, free); TransUnion (annual, free).
- Debt advice: National Debt Advisors, DebtBusters, NCR website.
- Employee benefits: Tax‑free savings accounts (TFSA), retirement fund top‑ups (your future self will thank you).
RELATED: Understanding Debt and How to Manage It Effectively
5. Mind‑shift: from spender to investor
“A car is not an investment; it’s a lifestyle choice.” — Financial planner quoted by IOL
Channel surplus cash into low‑cost index funds or RSA Retail Savings Bonds instead of continually upgrading liabilities. Compounding is the ultimate anti‑debt weapon.
Key take‑home points for avoiding the debt trap
- Treat credit as a calculated tool, not a lifeline.
- Prioritise high‑interest debt extermination over flashy purchases.
- Small, consistent habits (budgeting + emergency fund) beat heroic one‑offs.
- Ask for professional help before the arrears snowball.
Also read: Bad Credit Doesn’t Mean No Credit: Your Guide to Blacklisted Loans in South Africa