“The full impact of successive interest rate increases since November 2021 and elevated levels of inflation is now fully evident in consumer finances,” said DebtBusters’ head, Benay Sager.<\/p>\n\n\n\n
“With interest rate increases, lending activity has increased. Average loan size has increased by 78% since 2016, and virtually all consumers (95%) who applied for debt counselling in Q2 2023 had a personal loan \u2013 both indicating that consumers continue to supplement their income with unsecured credit, and personal loans have become a lifeline for many,” he added.<\/p>\n\n\n\n
The report highlighted that middle-class South Africans and other income brackets suffer from a higher debt service burden, less purchasing power (due to stubbornly high inflation and stagnant wages), and historical levels of unsecured debt.<\/p>\n\n\n\n
Debt service burden<\/strong><\/p>\n\n\n\n The data showed that consumers spend around 66% of their take-home pay to service their debt.<\/strong> This ratio seems to be the highest for the lowest and highest-income earners.<\/p>\n\n\n\n The report noted that those taking home R5,000 or less and those taking home R35,000 or more per month need to use 71% of their income towards debt repayments. <\/p>\n\n\n\n The debt-to-income ratio for the top two income bands is also higher in Q2 2023 compared to the same periods in the past. <\/p>\n\n\n\n The debt-to-income ratio has increased to 150% for those taking home more than R20,000 and 189% for those taking home R35,000 or more per month. These ratios are at all-time high levels.<\/strong><\/p>\n\n\n\n To put this into perspective, your debt-to-income (DTI) ratio is how much money you earn versus what you spend. <\/p>\n\n\n\n It’s calculated by dividing your monthly debts by your gross monthly income. Generally, experts recommend that it’s a good idea to keep your DTI ratio below 43%, though\u00a035% or less<\/strong>\u00a0is considered \u201cgood.\u201d<\/strong><\/p>\n\n\n\n “Overall debt levels have remained high, where the total debt to annual net income ratio is now 121% on average<\/strong>,” noted the report.<\/p>\n\n\n\n Purchasing power<\/strong><\/p>\n\n\n\n Nominal incomes in 2023 were 1% higher than 2016 levels; however, when cumulative inflation growth of 39% is factored in for the same seven-year period, consumers\u2019 purchasing power diminished by 38% over this period.<\/strong> <\/p>\n\n\n\n This means consumers feel like they are taking home 38% less today in real terms than in 2016. When one considers petrol prices almost doubled and electricity has increased by ~90% over the same period, consumers feel like they are taking home far less than they did previously, the report said. <\/p>\n\n\n\n Unsecured debt<\/strong><\/p>\n\n\n\n The report showed that most consumers who applied for debt counselling in Q2 2023 face unsustainably high levels of unsecured debt.<\/p>\n\n\n\n Unsecured debt levels were, on average, 26% higher than that in 2016 levels. While this ratio is lower than in some recent quarters, for those taking home R20,000 or more, the unsecured debt levels were 39% higher. For top earners, the figure is 50%.<\/p>\n\n\n\n This directly results from the erosion of net income (take-home pay), resulting in consumers’ need to supplement this erosion with unsecured credit.<\/p>\n\n\n\n Total debt levels (including secured and unsecured debt) have increased by 17% compared to 2016; this increase is lower than inflation and unsecured debt growth. “It confirms the view that unsecured debt is used as a lifeline for many income groups to supplement their incomes,” said the report.<\/p>\n\n\n\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2023\/08\/Screenshot-2023-08-16-145118.png\")
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