More people are seeking help with their debt according to the DebtBusters 2021 Q1 Debt Index, which tracks client trends quarter-on-quarter over the past five years.
It shows the number of South African consumers seeking help to manage their debt soared in the first quarter, with enquiries to DebtBusters increasing by 31% compared to the same period in 2020.
The sudden increase indicates that consumers are becoming more proactive about their debt and stagnating real income, says Benay Sager, head of DebtBusters. “Although nominal income is 7% higher compared to 2016 levels, cumulative inflation of 24% has shrunk real incomes by 17% in five years.”
This means that many consumers are compelled to borrow to make up the shortfall, getting them deeper into debt. According to the Index:
- people who apply for debt counselling, with take home pay of more than R20,000 per month, spend over 60% of their monthly net income to pay debt, with a persistently high debt-to-income ratio of more than 130%
- unsecured debt is on average 53% higher than 2016, increasing by 76% for people with a net income of R20,000 or more as this is the most common way to supplement the decline in their real income.
But there is good news
The good news is that more consumers, particularly men, are actively seeking help, Sager says. “The number of men enquiring about debt counselling has increased from 48% to 56% since 2016. In a society where debt is not readily discussed and many men avoid seeking help, this is encouraging.”
The other good news is that the number of consumers who have successfully completed debt counselling grew by 56% a year since 2016. In January 2021 alone, consumers with a collective R142 million in debt when they started the process obtained their clearance certificates.
Sager says it is clear that the process works and is an effective way for financially distressed consumers to improve their financial situation.
There have been consumers who ended up with debt counsellors who did not stick to the provisions of the National Credit Act. To protect yourself, ensure that you:
- ask for the debt counsellor’s registration number with the National Credit Regulator (NCR) and check the registration by calling 0860 627 627
- use a payment agency that is also registered with the NCR
- ask the debt counsellor if the NCR is investigating its operations
- also ask if the counsellor works according to the rules of the Debt Counsellor Rules System
- check if the fees are in line with the NCR guidelines
- ask who the lawyer is who will represent you in court
- check that you do not pay more for debt counselling than your debts
Also remember that only people who earn an income qualify for debt counselling and that as soon as you have applied for debt counselling, it is noted at the credit bureaus and you cannot qualify for more credit.