SOUTH African consumers’ debt situation is worsening, with the average debt-to-income ratio reaching its highest level, according to the DebtBusters’ second-quarter debt index.
The index, which tracks client trends quarter-on-quarter, showed that consumers inquiring about debt counselling were spending about 60 percent of their take-home pay to service debt. More concerning was that across all income bands the debt-to-income ratio was now at 122 percent, and it was at 152 percent for those taking home R20 000 or more.
Compared to the same period five years ago, the debt index found that unsecured debt level continued to increase, as it was now on average 32 percent higher than in 2016 and up by 49 percent among consumers taking home R20 000 or more.
This was a direct result of consumers using unsecured debt to offset the erosion of their take-home pay.
According to the index, real income was declining as inflation continued to bite. Nominal incomes were, on average, 3 percent higher than in the second quarter of 2016, but when cumulative inflation growth of 24 percent was factored in, real incomes shrunk by 21 percent.
DebtBusters head Benay Sager said there was a silver lining, as more people were seeking help. There was also a significant increase in those successfully completing debt counselling. Debt levels had increased substantially and the number of open accounts had decreased for consumers applying for debt counselling, both of which indicated that consumers were seeking help sooner.
Sager said the pool of consumers borrowing had also shrunk, as supported by National Credit Regulator data, which indicated that the average unsecured loan size had increased by 46 percent and the number of loans had decreased by 31 percent over the past four years.
DebtBusters said second-quarter inquiries about debt counselling had increased by 18 percent compared to a year ago. Sager attributed this to the after-effects of the nationwide lockdown and the narrowing of consumers’ ability to borrow.
Despite all the bad news, which was perhaps unsurprising given the impact of successive lockdowns on an already struggling economy, there were some positive findings that proved debt counselling was working, it said.
“More consumers successfully complete debt counselling, as there were now seven times as many consumers completing debt counselling as there were in 2016.
“Consumers who successfully completed debt counselling in the second quarter of this year paid back R320 million worth of debt to their creditors as part of the debt counselling process.”
Sager said the fact that 56 percent of applicants for debt counselling were male was also positive. In the second quarter of 2016, more women (52 percent) than men (48 percent) were applying for help to restructure their debt.
“In a society where men typically tended not to want to talk about or seek help with debt, it’s encouraging that men are becoming more proactive about dealing with debt problems,” he said.
The South African Reserve Bank Financial Stability Review, published in May, showed that low interest rates had significantly improved the debt-service capacity of households.
Household debt-to-disposable income increased last year, reaching 75.3 percent in the fourth quarter. Despite this, the cost of servicing debt for households fell to 7.7 percent of income at the end of last year, down from 9.5 percent at the end of the previous year and the lowest level in more than 14 years.
BUSINESS REPORT