Enquiries about debt counselling have grown significantly in 2021, according to the National Debt Counsellors Association (NDCA), with some members recording increases of over 30%.
Association chairperson, Benay Sager, said the increasing numbers are not unexpected given the effect of successive lockdowns on an economy that was already struggling before the pandemic.
“Loss of income, salary reductions, bonuses and incentives that have been reduced or not paid at all, combined with payment holidays coming to an end and already high levels of household debt meant people who were previously just about getting by no longer could.”
An April report by TransUnion 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 the respondents (46%) reported being past due on a bill or loan in the past three months.
Data published by DebtBusters in May shows that middle-class South Africans have been particularly hard hit, and are spending more of their salaries to make ends meet.
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.
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%.
Financial services company Transaction Capital has warned that as much of a third of South Africa’s middle-class could be wiped out due to the various lockdowns.
Citing credit statistics, wage data and unemployment figures, the group said that overdue debt balances continue to increase, with a R33 billion increase seen in 2020 alone. It said that around 38% of loans are not in good standing.
This is combined with the highest unemployment rate in 12 years at 32.5%, deteriorating monthly income, and below-inflation increase. As such, 34% of households in South Africa are forecast to fall out of the middle-class, it said.
This is further emphasised by wage data, with fewer South Africans reporting income in the R22,000+ wage range, while significant more South Africans are seeing incomes of less than R8,000.
These concerns have been echoed by financial analysts, with the country’s middle-class expected to be particularly hard hit as the country begins its Covid-19 recovery.
The number of people in debt who are relying on their credit to stay alive has sky-rocketed, leaving the South African economy teetering on the edge of borrowed time, said Hans Overbeek, founder and chief executive of Cyber Finance.
While the impact is being felt by all sectors and groups, Overbeek said that middle-class families are increasingly falling behind.
“Many permanently employed workers have had to transition to contractual or informal employment, as businesses try and mitigate their own losses,” he said.
Overbeek said that more South Africans are also becoming indebted as they rely on their credit to support themselves and their families.
“Many people who were on track to pay off their debts prior to the pandemic have now been forced to take two steps back, as they struggle to stay afloat,” he said.