The number of South Africans seeking help in managing their growing burden of debt with the help of dependable debt counselling, continues rising. This is according to findings for the first quarter (Q1) of 2023 by the financial and debt counselling service provider DebtBusters.
The number grew by 40% compared to the same period last year. The sharp rise is attributed to South Africa’s increasing interest rates, high inflation, higher food prices, and high loan repayment rates.
Benay Sager, head of DebtBusters, said inflation and interest rates drive a demand for debt management.
He said that in addition to the increase in debt counselling enquiries, subscriptions for online debt management tools had gone up by 92%.
Sager confirmed findings show that when compared to Q1 of 2016, consumers who applied for debt counselling in Q1 of 2023 had 38% less purchasing power, as well as unsustainably high levels of unsecured debt and a higher debt-service burden.
“Consumers need 65% of their take-home pay to service debt each month,” said Sager.
He anticipates the trend will continue for the rest of the year, as the full impact of successive interest-rate increases since November 2021 is further compounded by increased levels of inflation.
“Average bond interest rates increased from 8,3% to 11,4% per annum in a short space of time. Average vehicle finance rates rose from 12% to 14,8% during the same period. This means if you have a R1 m bond and owe R200 000 in vehicle finance, you are expected to pay nearly R5 000 more per month.
“Those taking home R20 000 a month or more needed 70% of their income to make debt repayments. Debt-to-income ratios were at, or close to, all-time highs. For people taking home more than R10 000 per month these were 123%, and 159% for those making R20 000 or more,” said Sager.
He said the sharp increase is pushing consumers to resort to more personal loans, resulting in an increase of unsecured debt.
“Nearly everyone, 96% of people, who applied for debt counselling had a personal loan. This indicates consumers are supplementing their income using unsecured credit, and personal loans have become a lifeline for many South Africans.
“Unsecured debt levels, on average, had increased by 30% since 2016 – but were 67% higher for people taking home R20 000 or more. Although the volume of unsecured loans had declined by 13% since 2016, the average loan size had grown by 34%.
“This indicates that although the lending-risk appetite is not back to pre-pandemic levels, larger loans were being granted to the same number of consumers,” said Sager.
