Debt counselling enquiries rise as stress mounts

DEBT COUNSELLING firm DebtBusters has just released its Debt Index for the third quarter, which shows that there has been an increase of more than 30% in debt counselling enquiries compared with a year ago, indicating far higher levels of financial stress among consumers.

The firm says that with no meaningful increase in real income, rising interest rates and inflation are choking South African consumers, who are borrowing more. Many of the enquiries are from consumers who took on debt to buy assets such as motor vehicles when interest rates were at historical lows last year.

“The impact of the twin ‘I’s – inflation and interest – is evident in the data, which shows consumers are using unsecured credit to supplement their income. Average loan sizes have increased by 43% in just six years,” says Benay Sager, head of DebtBusters.

At the same time, the number of debt obligations has decreased from 7.6 to 6.1 per consumer. This indicates more debt per credit agreement and that people are sooner reaching the stage where they are seeking assistance.

DebtBusters first began collating and analysing data for the Debt Index in 2016. A comparison with the third quarter of 2016 starkly shows how inflation has eroded income and how rising interest rates are adding to debt-service costs.

Consumers who applied for debt counselling in Quarter 3, 2022 had:

33% less purchasing power: while nominal income was on par with 2016 levels, when inflation is considered, the money in South African wallets bought one-third less than it did six years ago.

A higher debt-service burden: On average, consumers enquiring about debt counselling are spending 62% of their take-home pay to service debt. The debt-to-income ratios for consumers at either end of the income spectrum is the highest recorded for Quarter 3. For those taking home less than R5 000 a month, the total debt to annual income ratio is 87% and for those with a take-home income of R20 000 or more, the ratio is at a historical high of 150%.

Unsustainably high levels of unsecured debt: Average unsecured debt levels were 26% higher than in 2016. The average figure is lower than during some previous years, possibly because of lender circumspection. But for consumers in the R20 000 or more income band, unsecured debt levels were 50% higher. This is a direct result of using unsecured credit to make up for the cumulative impact of inflation on their take-home income.

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