DebtBusters’ latest debt index shows that real incomes in South Africa have shrunk over the past several years, exacerbated by the onset of the Covid-19 pandemic.
Head of DebtBusters, Benay Sager, said that the impact of the lockdowns aimed at preventing the spread of Covid-19 has resulted in households which were just making ends meet now struggling to pay their bills.
“Lower interest rates and payment holidays may have provided some short-term relief, but the economic slowdown, business closures, redundancies, salary cuts, reduced or no year-end bonuses and the steady erosion of real net income considerably outweighs this.”
The debt counsellor said that enquiries to date in 2021 about getting assistance with debt is up by 40% compared to the same period last year.
“While this illustrates how difficult circumstances have become for many South African households, it’s positive that a lot more people are seeking help,” Sagar said.
He said that South Africa has an effective, well-regulated debt counselling sector and pointed to the 40% per annum increase over the past four years of people successfully completing the process.
According to DebtBusters, the average number of credit agreements for new clients was six, down from 7.4 several years ago. This shows clients are feeling the burden of debt earlier than before
The average age of new clients is 39, which is marginally higher than previous years.
In January DebtBusters alone provided clearance certificates to clients who had a combined R142 million worth of debt when they started debt counselling.
The interest rate reductions during 2020 have benefited people who successfully applied for debt counselling. The lower rates enabled debt counsellors to negotiate reductions of over 90% on interest rates for unsecured debt, from an average of 21% to ~1.2%.
The debt mix for new applicants has shifted dramatically over the last year, the debt counselling firm said, through a combination of payment holidays offered by banks and reduction in interest rates.
However, the impact of interest rate reduction has been very limited on unsecured debt, it said. Total debt levels have increased by 6% compared to Q4 2016, indicating that debt growth is really driven by growth in unsecured debt.
The changing landscape with larger-size unsecured loans is also supported by NCR data (Q3 2020 latest available), where the average unsecured loan size increased by 48% in four years to an ever-shrinking pool of applicants