More South Africans turn to debt counsellors
Consumers are becoming over-indebted sooner, although they have fewer agreements
DEBTBUSTERS’ latest quarterly debt report shows more South Africans are turning to debt counsellors to help them manage their credit, and it’s not only people with unsecured debt who are finding it hard to make ends meet.
DebtBusters is the country’s largest debt counsellor. The quarterly analysis has tracked client trends quarter-on-quarter and over the past four years.
“The significant increase in debt being repaid by consumers indicates that the debt-counselling system is working for both consumers and credit providers,” says Benay Sager, DebtBusters’ chief operating officer.
He says what is concerning is that when consumers apply for debt counselling, their average debt repayment to net income figure is 61 percent, well above sustainable levels.
Overall debt levels, the total debt exposure to annual net income, have also increased to 107 percent.
“When we look at the lowest and highest-income earners, the situation is even more stark,” says Sager. “People who earn less than R5 000 a month need 63 percent of their income to repay their creditors. They are also charged the most interest. Those who earn over R20 000 a month have debt levels of, on average, 133 percent of their net annual income.”
Another warning sign that people are becoming over-indebted sooner is the number of credit agreements they have. This number has declined from an average of 8.6 in the second quarter of 2015 to 6.6 this year, meaning consumers are getting into debt trouble with far fewer agreements than they did before.
“What the numbers show is that while appetite for credit hasn’t diminished, consumers become over-indebted sooner and consequently are not able to take out more credit.”
The four-year comparison challenges assumptions that it is primarily people with unsecured debt who seek counselling. Since the second quarter of 2015, more consumers with assets are becoming over-indebted.
Over the past four years, consumers with assets such as vehicles or homes seeking debt counselling has increased from 49 percent to 56 percent.
Debt counselling offers a debt management solution that is regulated by the National Credit Act, and offers consumers a way to renegotiate interest rates and extend their payment terms while protecting their assets.
“People wait too long before seeking help.
“To fix a financial problem, consumers who would happily consult a lawyer, tax adviser, accountant or other professional are often still reluctant to speak to a debt counsellor.
“If you think you have a debt problem or are struggling to make repayments, it’s always better to act rather than wait, as it will usually get worse,” says Sager.