Number of people seeking help from debt counsellors rises 40% year on year
More South Africans are seeking the help of debt counsellors to help manage their finances as high inflation and interestrate hikes squeeze their disposable income and hamper their ability to repay their liabilities.
According to the Debt Index by DebtBusters, a company that helps consumers manage their debt, the number of inquiries grew 40% year on year in the first quarter.
Consumers spent nearly two-thirds of net income to pay off debt.
DebtBusters head Benay
Sager expected this trend to continue as the effects of several interest-rate hikes since November 2021 and higher inflation took a toll on personal finances and pushed up the cost of credit.
“This steep increase is pushing consumers to tap into more personal loans.
“Nearly everyone (96%) who applied for debt counselling had a personal loan.
“This indicates that consumers are supplementing their income using unsecured credit and personal loans have become a lifeline for many South Africans,” he said.
The index, compiled from debt-counselling applications, showed the effect of the SA Reserve Bank raising the repo rate, the rate at which the Bank lends money to private banks, by 4.25 percentage points from July 2020 to 7.75%.
DebtBusters found that when comparing the first three months of 2023 with the same period in 2016, consumers applying for debt counselling were taking home 38% less in real terms as their nominal income increase of 2% over the last seven years was offset by the cumulative inflation growth of 40%.
During the same period, the prices of petrol and power have surged.
Meanwhile, average unsecured debt levels — credit not backed by underlying assets — have increased 30% on average since 2016.
“Though the volume of unsecured loans had declined 13% since 2016, the average loan size had grown by 34%.
“This indicates that though lending-risk appetite is not back to pre-pandemic levels, larger loans were being granted to the same number of consumers,” the company said.