Debt Index: Consumers borrowing to make up income shortfall
South African consumers are increasingly using unsecured debt to supplement their declining incomes and, on average, those who are financially distressed are spending R6 of every R10 they earn to pay back debt.
This was one of the findings in DebtBusters’ Q3 debt index. The analysis tracks client trends quarter-on-quarter and over the past four years.
“It’s significant that clients approaching us during the last quarter have on average 5.9 credit agreements, compared to 7.4 in 2016. This is the lowest in a decade and indicates that people are becoming financially distressed and seeking help much sooner than before,” says Benay Sager, DebtBusters’ chief operating officer.
The index shows a very apparent decline in real income growth during the quarter, with nominal incomes on average 2% lower than in 2016.
“If you factor in a very conservative 18% compounded inflation growth over the same period, then real incomes have declined by 20% over the past four years. In reality most consumers probably experience a greater impact because increases in the prices of some essentials such as electricity and petrol were substantially higher than the reported inflation rate,” says Sager.
With consumers making up the shortfall by using unsecured debt such as personal loans or credit cards, the average unsecured debt for consumers was 41% higher than in 2016. Those taking home more than R20,000 per month had 58% more unsecured debt than four years ago. This is unsustainable.
Sager says that despite declining income and exceedingly high levels of debt there was some positive data in the report.
“Consumers are seeking help earlier. We have experienced a steady increase in the number of enquiries since the easing of the national lockdown.
“In addition, the 32% annual increase in the number of people successfully completing debt counselling indicates that the process is working and is an effective way for financially distressed consumers to improve their financial situation.”