South Africa’s middle class is facing a massive debt problem, and the lack of end-of-year bonuses and wage stagnation means that many people are borrowing to pay for necessities such as food and transport.
Speaking to the Sunday Times,Paul Slot from the Debt Counselling Association said that 10 million people in South Africa have bad debt — meaning they have missed three or more monthly repayments. He said that these people have an average of eight loans each.
On average those in bad debt spend 63% of their after-tax income on repayments, he said.
The report stated that the middle class is particularly hard hit.
“While there are more people in the US and UK with debt, those countries’ unemployment rates are lower than South Africa’s. We have an incredibly high number of people who are unemployed who are in debt.”
Slot said a survey the association conducted among people with bad debt found they are borrowing for daily necessities such as food and transport, and are also cutting back on their medical aid and insurance policies.
“Our company conducts 250 reckless lending investigations a month, with 50 reported to the courts a month. It is incredibly worrying as it shows people are desperate for money and are willing to enter reckless loan agreements,” he said.
This was confirmed by the National Credit Regulator (NCR) statistics and research department supervisor, Bongani Gwexe, who said that 84% of those who earn R15,000 a month or more have some form of debt. The average middle-income salary is R20,000.
NCR statistics showed a year-on-year increase in the number of people who earn at least R15,000 and who are in debt, and Gwexe said unsecured loans and credit cards are the fastest-growing types of debt.
The latest DebtBusters quarterly debt report showed that South African consumers’ debt compared to what they earn has increased greatly over the past four years, reaching new highs in the third quarter of 2019.
The report found that at 117%, the ratio of debt to net income among DebtBusters’ clients in Q3 2019 is the highest it has been during the last four years.
For some income levels, the debt to income ratio is as high as 135% (those earning more than R20,000 a month). Just last year, the same ratio was 109%.
“The debt-to-income ratio has gone up massively over the last few years and this is particularly concerning ahead of the festive season, when we know people are under the pressure to spend more,” said Benay Sager, DebtBusters’ chief operating officer.