Red flags for South Africans earning over R20,000 per month
The financial challenges faced by South Africans continue to intensify, particularly for those earning R20,000 or more per month, according to recent data.
The DebtBusters’ Debt Index report for the second quarter of 2024 highlights that individuals within this income bracket are struggling the most with debt repayments.
Despite anticipated interest rate cuts in September 2024, high interest rates have already placed significant pressure on middle to high-income earners in South Africa.
Individuals earning between R20,000 and R35,000, and those earning above R35,000, have faced a heavier burden in servicing debt as borrowing costs have surged.
The combination of high inflation, stagnant income growth, and the steep cost of borrowing has pushed many to rely on unsecured loans to cover daily expenses.
Mortgage repayments, in particular, have driven up debt-to-income ratios to unprecedented levels.
While interest rate cuts may offer relief, the economic strain felt by middle to high-income households remains severe, signalling a long road to recovery for many.
The DebtBusters’ report revealed that those earning between R20,000 and R35,000, and even more significantly, those earning above R35,000, are devoting the largest portion of their income to debt servicing compared to other income groups.
On average, South Africans are using 62% of their take-home pay to service debt, but for those in the highest income bracket, this figure rises to a staggering 68%.
This means that individuals earning over R35,000 per month are putting more than two-thirds of their income towards paying off their debts, leaving them with very little disposable income for other expenses.
The high debt burden among South Africans is also reflected in the debt-to-income ratios reported.
Those earning over R35,000 have a debt-to-income ratio of 167%, the highest recorded since 2016.
This spike is largely attributed to bond repayments, which make up a significant portion of their debt.
Since 2016, individuals in this income group have seen a 23% increase in their overall debt levels, suggesting that the rising cost of housing and other living expenses has had a significant impact on their financial stability.
For those earning between R20,000 and R35,000, the debt-to-income ratio stands at 128%, which, while lower than the top income group, still indicates considerable financial strain.
Bond repayments account for a substantial 42% of the debt for individuals in the highest income group, underscoring the pressure that rising property costs have placed on South African households.
One of the most concerning trends highlighted in the report is the minimal growth in nominal income over the past eight years.
Since 2016, nominal income has only increased by 2%, while inflation has surged by 46%.
This disparity means that today’s salaries are 44% less than they were in 2016, leaving many South Africans struggling to maintain their standard of living.
In response to this income squeeze, many have turned to unsecured borrowing to supplement their earnings.
The report notes that since 2016, the average size of unsecured loans has increased by 82%, far outpacing inflation.
Interestingly, the number of loans has decreased by 34%, suggesting that a smaller pool of consumers is taking on larger debts, further exacerbating their financial burdens.
DebtBusters notes that consumers are increasingly relying on unsecured credit to make ends meet, a trend that has worsened due to high inflation and rising interest rates.
The demand for debt management services has risen sharply in recent years, with the number of people completing debt counselling increasing tenfold since 2016.
In the second quarter of 2024 alone, consumers who completed the debt counselling process paid back over R640 million to creditors.
Additionally, debt counselling inquiries were up by 28% in the third quarter of 2023, while online debt management requests surged by 65%.
DebtBusters anticipates that this trend will continue throughout the rest of 2024.
Read: South Africa set for interest rate cuts – what it means for investments
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