Johannesburg - The number of people who go for debt counselling when they are at the end of the spiral, spending more than their entire disposable income to service debt, is on the rise, according to two debt restructuring firms.
DebtBusters, which has more than 15 000 customers under debt management, said, on average, its clients spent more than 100 percent of their net income servicing their debt, excluding living expenses.
“Our clients typically borrow from the ‘big four’ banks; when the ‘big four’ are not comfortable lending to them any more, they go to second- and third-tier credit providers.
“Every time they apply for more credit, it gets more expensive, not just the interest rates, but fees and credit life insurance. The final loans normally come from ‘payday lenders’,” marketing manager Kelli Knutsen said.
The firm has experienced 85 percent year-on-year growth in the amount of debt counselling applications this month.
She said consumers were in a worse position now than during the recession as the percentage of net income used to service debt was then below 75 percent. DebtBusters was getting a three times as many monthly applications for debt counselling now compared with those in 2008/9.
“They are in a far worse position, not necessarily total debt wise (debt to income ratio) but in the cost of debt repayments,” Knutsen said.
According to Octogen, another firm which was preparing a report on the state of consumer indebtedness for Parliament this week, there were 12 000 consumers who applied for counselling every month, on average.
It said consumer applications for review had grown by 279 percent since 2008. The average repayment per consumer increased to 51 percent of net income last year from an average of 41 percent in 2008.
Chief executive Paul Slot explained that consumers who had monthly debt commitments exceeding 100 percent of their income when they applied for debt review, would have to commit more than 50 percent of their net income on debt repayments.
Debt repayment obligations averaged 65 percent of income, and when living expenses such as rent, groceries, electricity and transport costs were taken into account, expenses exceeded income.
“This is the case with all consumers who apply for debt review. What makes it worse is when some credit providers approve debt which commits 70 percent to 80 percent of monthly income. These consumers will be in deep trouble,” Slot said.
Octogen’s data, which categorises debt commitments according to income brackets, showed that 62 percent of low-income earners had debt repayments that exceeded 75 percent of their income. In the middle income group, 56 percent spent more than three-quarters of their monthly net income servicing debt. Only 35 percent of high-income earners had payments exceeding three-quarters of their income.
Statistics released by the National Treasury last month show that 4.2 million out of the 20.29m credit active consumers in South Africa had accounts in arrears for more than three months.
Consumers’ accounts and loan impairments reached the highest level since January 2007 in the second quarter of last year, according to credit bureau company TransUnion.
The National Credit Regulator said debt counselling applications leapt by 64.5 percent from 2008 to 2009 but the growth from 2009 to 2013 was only 17 percent. New applications last year totalled 117 210. - Business Report