More South Africans turn to debt counselling as ability to borrow diminishes

More people are seeking help for their consumer debt as their ability to borrow diminishes, and they have to handle increasing interest rates and rising inflation.

Enquiries about consumer debt counselling have increased by 17% compared to the second quarter of 2021.

The DebtBusters Debt Index for the second quarter of 2022 showed that without any meaningful increase in real income, South African consumers are still using unsecured debt to supplement their take-home pay.

“While the ability to take on new credit may now be somewhat more constrained, as the slight decline in unsecured debt levels indicates, the average loan size has increased by 28%.

“Our recent Money-Stress Tracker survey showed that inflation was one of consumers’ top three financial concerns and has been cited as one of the main reasons for debt counselling enquiries,” says Benay Sager, head of DebtBusters.

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Second quarter of 2022 compared to 2016

When compared to 2016 data, the index shows that people who applied for debt counselling in the second quarter had:

• 34% less purchasing power: Nominal income was the same as in 2016, but considering cumulative inflation over the past six years, purchasing power declined.
  Inflation is now also significantly higher than at any time since 2016. Combined with successive interest rate increases and no income growth, consumers will be under more pressure.
  
• A higher debt-service burden: Consumers applying for debt counselling are spending about 63% of their take-home pay to service their debt, and those earning between R10 000 and R20 000 per month are feeling the pressures of interest and inflationary increases the most.
  The overall debt-to-income ratio for this group is 127%, almost the highest recorded ratio.
  
• Higher levels of unsecured debt: Unsecured debt levels were, on average, 22% higher than in the second quarter of 2016 but slightly lower than 2021 levels.

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Increased demand for consumer debt counselling

Over the past six years, the number of consumers who successfully completed debt counselling increased 8.5 times, and during the second quarter, they paid back R370 million worth of debt to creditors.

“A significant advantage of debt counselling is that the interest rates on unsecured debt can be significantly reduced, which allows consumers to pay back expensive debt more quickly.”

The index also indicated increased demand for debt counselling, with inquiries up 17% compared to the same period last year. Many consumers seek help proactively as they feel the impact of inflation, interest rate increases and diminished ability to borrow, Sager says.