Consumers spending ‘dangerously high’ portion of income on debt

Consumers are spending a ‘dangerously high’ portion of their income on debt repayments, with 72% consumers in a survey spending more than 30% of their after-tax income on paying off debt.

“We normally advise consumers not to spend more than 30% of their take-home pay on debt repayments. This should at the most [be] 40%, but 72% is unsustainable,” Nosiphiwo Nxawe, manager of payments at DebtBusters, says.

The DebtBusters Money-stress Tracker tracks the impact of financial stress on the home and work lives, as well as health of more than 14 000 subscribers to its platform. The survey indicated that South Africans feel the high levels of financial stress is negatively impacting their health as well as their home and work lives.

Most of them try to deal with the problem themselves rather than seek professional help, with 70% of respondents saying they experience financial stress while 94% of these indicating it is affecting their home life, 77% that it affects their work life and 76% that it affects their health.

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These consumers experience the most financial stress due to debt

Consumers between the ages of 35 to 44, especially those who earn between R20 000 and R35 000 per month, seem to be under the most severe debt repayment pressure, with 79% spending more than 30% of their pay to pay off debt.

Women are more stressed about their finances, home and work life and health than men with women 30% more likely to be stressed about their health as a result of financial stress and 20% more worried about paying their debt each month.

More than half of participants (52%) indicated they feel stressed or anxious about running out of money before the end of the month, while 36% are struggling to pay off debt, 27% concerned about inflation, 23% worrying about unexpected expenses, 15% battling to pay school fees and 12% worrying about having enough savings to retire.

Financial stress was most acute among younger respondents and consumers who earn low salaries, with 40% of all respondents spending over half their take-home pay to repay debt.

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Plans to increase income

To deal with financial stress, consumers made all kinds of plans, from cutting back on monthly expenditure to selling personal items, with 43% opting to tighten their belts and 26% planning to increasing their income by finding a better job.

Good news is that 20% said they are now sticking to a budget, but 13% said they are looking for a loan, 11% will ask family to help and 8% selling personal items. Asked if they have considered debt counselling, 58% said they do not seed it, 25% did not know much about it and 17% said they are considering debt counselling.

Explaining why they did not do anything about their financial stress, 39% of the respondents also said they ‘felt stuck’ and 23% said they needed more time to think, 21% did not know who to trust, 9% saying they are too embarrassed to ask for help and 8% saying they want another loan.

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The psychology of financial stress

Diane Salters, psychotherapist and transactional analyst, explains that people seeking debt counselling will probably feel shame and fear, not think clearly and ready to fight, flight or freeze.

“Those in freeze mode will likely feel stuck as many responded in the survey. Those in flight mode will say they do not need debt counselling although the overall numbers indicate they are experiencing the effects of financial stress on their lives.

If they freeze, they will do nothing, or they may be ready to flee or fight the debt collector, their partner or spouse or even their debt counsellor.”

Nxawe says that comments from respondents who were currently under debt counselling reflected the informal feedback DebtBusters’ receives from clients.

“Once the decision is made to proceed with debt counselling, most people feel an immense sense of relief.”