As interest rates continue to surge consumers are in for a steep ride. That is according to DebtBusters, one of the country\u2019s leading debt counsellors.<\/p>\n\n\n\n
A staggering 32% of South African consumers reportedly enquired about debt counselling in January. <\/p>\n\n\n\n
This increased from 18% during the fourth quarter of last year.<\/p>\n\n\n\n
DebtBusters reckons the rising interest rates will intensify the pressure on South African consumers to make ends meet, as is already evident by the increase in enquiries for debt counselling. <\/p>\n\n\n\n
Demand for debt counselling in the fourth quarter of 2021 rose by 18% compared to the same period the previous year. This trend intensified in the first month of 2022, with enquiries increasing by more than 32% compared to January 2021. <\/p>\n\n\n\n
This is one of the findings from a quarterly analysis of applications to the country\u2019s largest debt counsellor. <\/p>\n\n\n\n
DebtBusters\u2019 Q4 2021 Debt Index was published on Tuesday 1 February as part of its National Debt Awareness Month campaign, aimed to better inform consumers about managing debt and the effect of rising interest rates. This year\u2019s theme is: Know what\u2019s in your best interest.<\/p>\n\n\n\n
Launching the campaign, Benay Sager, head of DebtBusters, said: \u201cWith the Reserve Bank just having increased the repo rate, National Debt Awareness Month comes at a critical juncture. Interest rates will take central stage for the foreseeable future and increases will impact our ability to borrow and pay back debt.\u201d<\/p>\n\n\n\n
The Q4 2021 Debt Index found that with no increase in real income levels since 2016, South African consumers continue to supplement their earnings with unsecured credit. <\/p>\n\n\n\n
Over the past six years the average loan size has increased by 45% and the number of debt obligations decreased by 19%. This indicates that consumers have more debt per credit agreement and are sooner reaching the point where they are no longer able to qualify for credit. <\/p>\n\n\n\n
Compared to 2016, the report found that those consumers who applied for debt counselling in Q4 2021 had:<\/p>\n\n\n\n
\u2022 25% less take-home pay. Although nominal income is only slightly lower than in 2016, when cumulative inflation of 24% over the six-year period is considered, real income has shrunk by 25%. <\/p>\n\n\n\n
\u2022 Higher debt service burden. On average consumers were spending about 62% of their take-home pay to service their debt before applying for debt counselling. <\/p>\n\n\n\n
Those taking home more than R20 000 or more per month need to use two thirds of their income to repay debt. <\/p>\n\n\n\n
Alarmingly the debt-to-income ratio for the top two income bands was higher in Q4 2021 compared to the same periods in the past. For people taking home more than R20 000 per month, the debt-to-income ratio was 146%. <\/p>\n\n\n\n
\u2022 Unsustainably high levels of unsecured debt. Unsecured debt levels were on average 22% higher than in 2016. For consumers taking home R20 000 or more per month, unsecured debt levels were 43% higher. This indicates that these consumers are using unsecured credit to supplement the erosion in their real income.<\/p>\n\n\n\n
Sager explains that consumers are now facing a perfect storm of rising interest rates and growing inflation. \u201cAverage interest rates for bonds and vehicle finance started to decrease from the second quarter in 2020, thanks to the Reserve Bank\u2019s multiple rate reductions. <\/p>\n\n\n\n
Consumers with assets benefitted from this as well as the bank payment holidays introduced to mitigate the impact of the Covid-19 pandemic. Bank payment holidays ended a while ago; now as the repo rate starts to tick up, the benefits of low interest rates will disappear and consumers should do everything possible to reduce the cost of credit and protect their assets.\u201d<\/p>\n\n\n\n
He says that debt counselling is the most effective way to cushion consumers against the reality of rising interest rates.<\/p>\n\n\n\n
Under debt counselling interest rates on unsecured debt can be reduced by over 90% from an average of 21,5% to 1,2%. This allows consumers to pay back expensive debt more quickly.<\/p>\n\n\n\n
In 2021, by working with creditors, DebtBusters was able to negotiate interest rate reductions that enabled its clients to repay R2 billion. Consumers who completed debt counselling in Q4 2021 repaid over R250 million worth of debt while they were under debt counselling. <\/p>\n\n\n\n
Sager says that despite rising interest rates, declining real income and increasing debt levels there are some positive signs.<\/p>\n\n\n\n
\u201cWe\u2019ve found that following the lockdowns, the end of the 2020 payment holidays and a diminished ability to borrow, more consumers are proactively seeking help to manage their debt. <\/p>\n\n\n\n
\u201cAnother positive indicator is that 55% of new applicants are male. In a society where men often avoid talking about debt or fear being stigmatised, this is good news. After all, if you\u2019re struggling with debt, getting help is the responsible thing to do.\u201d<\/p>\n\n\n\n
DebtBusters is South Africa\u2019s leading and largest debt counsellor. The quarterly Debt Index is compiled from data provided by clients who have applied for debt counselling.<\/p>\n\n\n\n
Throughout National Debt Awareness Month this February, DebtBusters will be providing consumers with information about managing their debt and debt counselling. Self-help tools via a tailored credit report and profile can also be accessed on www.debtbusters.co.za As interest rates continue to surge consumers are in for a steep ride. That is according to DebtBusters, one of the country\u2019s leading debt 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