Struggling middle-class South Africans are spending more than half their salaries to pay off debt

New data from debt counsellor DebtBusters shows that earners across all income brackets are worse off compared to five years ago, when looking at total debt exposure vs annual net income.

The number of South African consumers seeking help to manage debt also soared in the first quarter, with enquiries up 31% compared to the same period in 2020, the group said.

Head of DebtBusters, Benay Sager said that the sudden increase is the culmination of consumers becoming more proactive about their debt and a lack of increase in real income.

“Although nominal income is 7% higher compared to 2016 levels, when cumulative inflation of 24% is factored in, real incomes have shrunk by 17% in five years. Many consumers are compelled to borrow to make up the shortfall,” he said.

DebtBusters’ data shows that people applying for debt counselling with take-home pay of over R20,000 per month are spending over 60% of their monthly net income to service debt and have a persistently high debt-to-income ratio of over 130%.

Unsecured debt is also 53% higher than in 2016 on average, the data shows. For those with a net income of R20,000 or more, unsecured debt levels have increased by 76%.

The total debt exposure to annual net income ratio comparison indicates earners in most income brackets are worse off compared to five years ago.

However, those taking home less than R5,000 each month need to spend highest portion of their salary on debt repayments; while those taking home over R20,000 have the highest overall debt to income ratio.

When looking at the specific debts under management, Debtbusters said that vehicle debt has increased in the last few years, indicating that more consumers with assets, and vehicles in particular, are becoming over-indebted.

While the average new applicant age has been consistent, the share of applicants who are 45 or older has increased from 19% to 27% over the past five years, indicating financial stress is becoming more prevalent in this age category.

Just over half (56%) of new applicants were male indicating men are becoming more proactive about financial distress.

Findings from the research Consumer Pulse Report by TransUnion highlighted the financial impact of the Covid-19 crisis on South African consumers.

The report, out at the end of April, found that 39% of consumers said they plan to pay partial amounts towards their bills or loans to remain current, while just under half of respondents (46%) reported being past due on a bill or loan in the past three months.

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Struggling middle-class South Africans are spending more than half their salaries to pay off debt