Consumer income drops while unsecured debt spikes – index

Consumer income for the second quarter (Q2) was 21% less and unsecured debt was 32% higher on average compared to five years ago, according to the latest Debt Index from DebtBusters.

This has confirmed that the debt situation of South African consumers is getting worse, with the average debt-to-income ratio at its highest level ever.

The DebtBusters’ 2021 Q2 Debt Index, which tracked client trends quarter-on-quarter and over the past five years, showed that enquiries about debt counselling also increased by 18% compared to a year ago, said Benay Sager, head of DebtBusters.

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Increased debt levels

He attributed this to the after-effects of the nationwide lockdown and a narrowing of consumers’ ability to borrow.

“The debt levels have increased substantially and the number of open accounts have decreased for consumers applying for debt counselling, both indicating that consumers are seeking help sooner.”

The index also showed that the pool of borrowing consumers had become smaller, in line with National Credit Regulator (NCR) data. The NCR data indicated that average unsecured loan size had increased by 46%, while the number of loans had decreased by 31% over the past four years.

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Compared to five years ago

The Debt Index compared the latest data to the data collected for the second quarter of 2016 and found:

• Real income is declining as inflation continues to bite as illustrated by nominal incomes that were, on average, 3% higher than in 2016, but cumulative inflation growth of 24% shrunk real income by 21%
• The debt-to-net-income ratio is at an all-time high with consumers who enquire about debt counselling spending around 60% of their take-home pay to service debt
• Even more concerning is that the debt-to-income ratio is now at 122% and 152% across all income bands for those taking home R20,000 or more
• Unsecured debt levels continues to increase, with the level in 2021 on average 32% higher than in 2016 and up by 49% among consumers taking home R20,000 or more, a direct result of consumers using unsecured debt to offset the erosion of their take-home pay.

ALSO READ: 82% of SA consumers in dire financial straits

A bit of good news

Despite all the bad news, which is perhaps unsurprising given the impact of successive lockdowns on an economy that is already struggling, some positive findings showed that debt counselling worked, as more consumers successfully completed debt counselling, with seven times as many consumers completing debt counselling compared to 2016.

Sager said consumers who successfully completed debt counselling, paid back R320 million worth of debt to their creditors as part of the debt counselling process according to the latest data. The fact that 56% of debt counselling applicants were men was also positive.

In Q2 2016, more women (52%) than men (48%) applied for help to restructure their debt.