Sharp rise in consumers seeking debt counselling

High interest rates and inflation – especially food inflation – continued to erode consumers’ disposable income.

High interest rates and inflation – especially food inflation – continued to erode consumers’ disposable income.

Published May 9, 2024


There has been a sharp increase in the number of consumers seeking debt counselling assistance in the first quarter of 2024.

This is according to a report released by debt counselling company, DebtBusters.

It said that statistics showed that there had been an increase of 22% in debt counselling enquiries in the first quarter of 2024 compared to the same period last year. Online debt management also rose by 30% during the same period.

Benay Sager, executive head of DebtBusters, said high interest rates and inflation – especially food inflation – continued to erode consumers’ disposable income.

Sager added that the over 40+ age category has been impacted by increased interest rates on asset-linked debt.

“The average interest rate for a bond has increased from 8.3% a year in Q4 2020 to 12.3% in Q1 2024. For a R1.5 million bond this adds an extra R4 000 a month to the repayment amount.”

Sager said higher-income earners were using credit to offset the dual impact of inflation and interest rates which is 475 basis points higher than in 2020.

“These consumers typically have more short-term loans than those in other income bands and devote a greater proportion of their income to repaying debt.”

Sager added that purchasing power had diminished by 47%.

“Nominal incomes are 1% lower than in 2016 while the cumulative impact of inflation since 2016 is 48%.”

Sager said the debt-service burden is high, with the average debt-counselling applicant using 62% of net income to repay debt.

“The situation is worse among higher income earners. The debt-to-income ratio for people taking home more than R20 000 per month is 127%, while it is 172% for those earning R35 000 or more.”

Neil Roets, CEO of debt counselling company Debt Rescue, said he had seen a significant surge in debt counselling enquiries, reflecting a worrying trend in the financial behaviours of South Africans.

“We’re seeing a marked increase in consumers seeking help, driven by the dual pressures of high inflation and interest rates, alongside stagnant incomes. These economic pressures are diminishing the purchasing power of consumers, compelling many to accrue higher levels of debt to manage daily expenses.”

Roets added that many were turning to credit in the form of credit cards, store cards and short-term loans to feed their families.

“This situation is a clear indicator of broader challenges within the South African economy, where slow economic growth fails to keep pace with the rising cost of living.”

Roets said these economic issues needed to be addressed to offer more financial stability for consumers.

Professor Irrshad Kaseeram, from the University of Zululand’s Economics Department, said consumers were faced with pressures from many fronts due to higher interest rates.

“Government mismanagement of the economy since 2009 has led to higher risk premiums, hence leading to higher average interest rates and a continuously depreciating currency. The Reserve Bank has taken a sound but painful stance not to reduce repo rate until inflation drops below 4.5%.”

Kaseeram added that the high interest rates consumers face have left them highly indebted, as the DebtBusters report showed.

“The Reserve Bank and IMF expects inflation to fall below 4.5% in 2025, thus indicating that the high interest rate will remain unchanged in a worst case scenario for the rest of the year.”

The Mercury