THE situation for South African consumers struggling with debt was deteriorating, according to this year’s third quarter DebtBusters’ Debt Index.
This was while the country might, for the moment, be over the worst of the pandemic but however like with the lingering long Covid, consumers were still feeling the effects of consecutive lockdowns.
Add to this was a diminished ability to borrow which meant that getting any relief from the symptoms of straitened finances was harder.
DebtBusters head Benay Sager said this week that with no meaningful increase in real income, consumers continued to turn to unsecured credit to supplement their pay cheques.
“It’s a trend that we’ve seen intensify over the past few years,” Sager said.
He said the good news was that more people were proactively seeking help for their financial ills, with debt counselling enquiries up by 17 percent compared to the third quarter of last year.
The latest Debt Index shows that compared to 2016, consumers who applied for debt counselling during the third quarter this year had zero nominal income growth and negative real income growth. Nominal incomes were the same as 2016 levels, but when the cumulative effect of inflation was considered, real income shrank by 24 percent over the five years.
The index also showed a higher debt-to-net-income ratio as alarmingly, the average ratio of debt to net income was now 116 percent across all income bands. This was higher than during any comparable period since 2016. For people taking home R20 000 or more it was now 145 percent. To put this into perspective, people who were consistently spending 60 percent of their take-home pay to service debt were considered eligible for debt counselling.
It also showed that the levels of unsecured debt that were, on average, 25 percent higher than 2016 levels. For those people taking home R20 000 or more unsecured debt was 59 percent higher. This pointed directly to consumers increasingly using unsecured credit to counter the erosion of net income.
Sager said loan sizes had increased by half, 50 percent, over the past few years, proving that people needed access to more money due to their income not growing. The number of debt obligations had declined by 19 percent pointing to consumers seeking help sooner.
DebtBusters said other positive news was that the number of people who had successfully completed debt counselling had increased sixfold over the past five years. Consumers who received their clearance certificates in the third quarter of this year paid back R300 million worth of debt while under debt counselling.
During the quarter, 57 percent of new applicants were men, showing a sustained increase. Sager said this was a welcome development as South African men used to be reluctant to seek help with their finances, with the majority typically preferring to struggle on alone.
“Not dealing with debt can impact mental health and given November is Men’s Health Awareness Month, it’s good to see a growing understanding of debt counselling, how it works and recognition that it can be an effective way to manage debt,” Sager said.