Newly released DebtBusters’ Debt Index shows that South African households remain in a tight vice of severe financial strain despite consumer sentiment improving this year.
The quarterly report, which evaluates debt counselling applications, paints a picture of a nation whose purchasing power has plummeted as debt-service burdens have reached record highs.
Executive head of DebtBusters Benay Sager has acknowledged that successive interest rate and petrol price cuts have provided some relief, allowing consumers to better manage their debt.
However, he stressed that this has not alleviated the underlying crisis. “Finances are still seriously strained,” Sager stated, pointing to a nine-year trend where income growth has been completely decimated by soaring living costs.
The core of the problem lies in a fundamental imbalance, according to Sager.
“Over the past nine years, cumulative inflation has reached 51%, driven by a 165% increase in electricity costs and an 80% hike in the petrol price. This is in stark contrast to nominal net incomes that have crept up by a mere 3%. So to bridge this widening gap, consumers are increasingly turning to short-term, high-cost credit.”
The data reveals a dependency on unsecured debt that is becoming unsustainable.
“Of those applying for debt counselling, 95% have a personal loan, and 57% have a payday loan. A further 22% rely regularly on overdraft facilities. Notably, vehicle debt is also making up a substantial portion of the debt for new clients.
“This trend is reflected in a 47% year-on-year surge in demand for online debt management solutions,” he said.
He added that this high indebtedness highlights several critical areas of concern, including the following:
• A 48% loss of purchasing power since 2016, meaning that consumers now have nearly half the buying power, forcing them to use credit for essential expenses.
• Before seeking help, consumers are spending 70% of their net income on debt repayments – the highest level since 2017, and this strain is universal, with those taking home R35 000 a month using a staggering 78% of their income on debt repayment, while the most vulnerable – those earning R5 000 or less – spend 92% of their income servicing debt.
• For top earners, unsecured debt levels are now 32% higher than they were nine years ago. For this group, which earns more than R35 000 a month, unsecured debt is 61% higher than it was in 2016. Without meaningful salary increases, even this group is forced to supplement its income with credit.
Despite the grim statistics, Sager emphasised that debt counselling provides a proven solution. “Debt counselling works and benefits both consumers and creditors,” he said.
Counsellors can renegotiate exorbitant interest rates, slashing unsecured debt rates from 22.3% to around 2.3% per annum and making vehicle loan repayments more manageable.
The system’s effectiveness is demonstrated by a 12-fold increase since 2016 in the number of people completing debt counselling. Between July and September, the system cleared more than R540-million worth of debt, meaning that distressed consumers paid back their loans.
But as the index makes clear, without vigilance, many would collapse under the heavy debt burden.
