Consumers spend R6 of every R10 paying debts – just like the government

It is not only the government that spends 60% of its income on servicing its debt, South African consumers are spending R6 of every R10 they earn on paying back their debt.

They are also turning to unsecured loans more often to supplement declining incomes, according to DebtBusters’ debt index for the third quarter of 2020 that tracks client trends.

“It is significant that clients approaching us during the last quarter have on average 5.9 credit agreements, compared to 7.4 in 2016. This is the lowest in a decade and indicates that people are becoming financially distressed and seeking help much sooner than before,” says Benay Sager, CEO of DebtBusters.

The index shows a clear decline in real income growth during the third quarter, with nominal incomes on average 2% lower than in 2016. “If you factor in a very conservative 18% compounded inflation growth over the same period, it shows real incomes have declined by 20% over the past four years,” he says.

Sager believes most consumers probably experience a greater impact because increases in the prices of some essentials, such as electricity and petrol, have been substantially higher than the reported inflation rate.

Consumers are covering the shortfall by using unsecured credit, such as personal loans or credit cards, leading to average unsecured debt 41% higher than in 2016. Consumers taking home more than R20 000 a month had a total debt to annual income ratio of 123% and 58% more unsecured debt than four years ago, which is simply unsustainable, Sager says.

However, all is not all doom and gloom. Sager says despite declining income and exceedingly high levels of debt, there are some positive data in the report. “Consumers are seeking help earlier.  We have experienced a steady increase in the number of enquiries since the easing of the national lockdown.”

The 32% annual increase in the number of people successfully completing debt counselling also indicates the process is working.

“It is an effective way for financially distressed consumers to improve their financial situation.”

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