These income brackets owe the most debt in South Africa

New data from debt counsellor, DebtBusters, shows that earners in all income brackets in South Africa are worse off compared to four years ago when comparing total debt exposure to annual net income – with those taking home between R5,000 and R20,000 are under most pressure.

Payment holidays and successive repo rate reductions provided South African consumers significant relief in 2020, but for those reliant on unsecured debt, the respite has proved short-lived, DebtBusters said.

Those taking home over R20,000 per month need to spend 60% of their monthly net income to repay debt, the group’s Q4 2020 Debt Index showed.

The Q4 Debt Index found that real incomes shrunk across all income bands, in some cases by up to 20% compared to 2016 levels.

To some extent, this reduction was temporarily balanced by payment holidays and interest rate cuts. While the combination of these two factors provided relief by reducing the repayments on homes and cars, interest rates for unsecured debt were still around 21%.

Since most South African consumers have unsecured debt, they were faced with a debt burden when payments recommenced, it said.

Evidence of this is the share of unsecured debt in the portfolio of consumers who applied for debt counselling. Historically, the share of unsecured debt for debt counselling applicants was under 50%. The proportion of unsecured debt in debt counselling applications spiked to 60% in Q3 2020.

This ratio subsequently dropped to 51% in Q4 2020 after payment holidays ended in late Q3, DebtBusters said.

Income is declining in real terms and consumers are using unsecured debt to make up the shortfall. Compared to 2016, when DebtBusters began compiling the data, nominal income is 2% lower. When cumulative inflation of 18% is factored in, real income has shrunk by 20% over the four years.

Across all income bands, unsecured debt is, on average, 32% higher than it was in 2016. For those earning R20,000 or more, unsecured debt levels were about 45% higher. This is a result of higher earners with greater access to unsecured debt, using this to offset the erosion of their net income, the group said.

Debt exposure to net income ratio, when clients sign up with DebtBusters

People taking home over R20,000 per month spend 60% of their monthly net income to repay debt. At 130%, their total debt-to-income ratio is the highest it has been in years.

Head of DebtBusters, Benay Sager, said the impact of the lockdowns aimed at preventing the spread of Covid-19 has resulted in households which were just making ends meet now struggling to pay their bills.

“Lower interest rates and payment holidays may have provided some short-term relief, but the economic slowdown, business closures, redundancies, salary cuts, reduced or no year-end bonuses and the steady erosion of real net income considerably outweighs this.”

In 2021, enquiries to DebtBusters about getting assistance with debt are up by 40% compared to the same period last year.

“While this illustrates how difficult circumstances have become for many South African households, it’s positive that a lot more people are seeking help. That’s one of the things that National Debt Awareness Month is trying to achieve.”

Read: SA consumers are borrowing money to pay back their debt

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These income brackets owe the most debt in South Africa