South African consumers are increasingly using unsecured debt to supplement their declining incomes and, on average, those who are financially distressed are spending R6 of every R10 they earn to pay back debt.
This is one of the findings in DebtBusters’ Q3 debt index which tracks client trends quarter-on-quarter, and over the past four years.
“It’s significant that clients approaching us during the last quarter have on average 5.9 credit agreements, compared to 7.4 in 2016.
“This is the lowest in a decade and indicates that people are becoming financially distressed and seeking help much sooner than before,” said Benay Sager, DebtBusters’ chief operating officer.
Sager said that the index shows a very apparent decline in real income growth during the quarter, with nominal incomes on average 2% lower than in 2016.
“If you factor in a very conservative 18% compounded inflation growth over the same period, then real incomes have declined by 20% over the past four years.
“In reality, most consumers probably experience a greater impact because increases in the prices of some essentials such as electricity and petrol were substantially higher than the reported inflation rate,” said Sager.
With consumers making up the shortfall by using unsecured debt such as personal loans or credit cards, the average unsecured debt for consumers is 41% higher than in 2016.
Those taking home more than R20,000 per month have 58% more unsecured debt than four years ago. This is unsustainable, Sager said.
He said that despite declining income and exceedingly high levels of debt there is some positive data in the report.
“Consumers are seeking help earlier. We have experienced a steady increase in the number of enquiries since the easing of the national lockdown.
“In addition, the 32% annual increase in the number of people successfully completing debt counselling indicates that the process is working and is an effective way for financially distressed consumers to improve their financial situation.”