South Africans’ net income has declined markedly in real terms since 2015 and consumers are making up the shortfall by large-scale borrowing, with average debt levels increasing 13% more than average income levels.
This is one of the headline findings in DebtBusters’ latest quarterly debt report for Q4 2019.
The report found that people who applied to the company for debt counselling during 2019 had, on average, 15% less real net income compared to those who applied in 2015.
The picture for higher-income earners – those pocketing over R20 000 a month – was worse. These consumers were bringing home 20% less in real terms than their counterparts in 2015.
The other significant finding is that these consumers are funding their lifestyles by taking out considerable unsecured credit, to the extent that this is beginning to outweigh asset finance, such as home loans and car finance, says Benay Sagar, DebtBusters’ Chief Operating Officer.
“On average unsecured debt levels are 40% higher on what we were seeing four years ago. For higher-income earners it is 50% up.”
The proportion of income required to service debt is stark evidence of the financial strain consumers face. The report found that in Q4 2019 DebtBusters’ clients needed 64% of their net income to repay debts.
The average client’s debt-to-income ratio was 110%, but for those earning R20 000 or more a month it was 134%.
“This is unsustainable, and it’s become worse over the past four years. It is why we’ve declared February National Debt Awareness Month,” says Sagar.
He explains the initiative has three objectives:
- To get consumers to recognise early warning signs they may be over-indebted and to seek help;
- To inform them about the benefits of debt-management and how it works and;
- To learn from others who have been overburdened by debt and successfully achieved financial freedom.
“Despite the concerningly high level of over-indebtedness, the good news is that South Africa has a sophisticated and effective debt counselling sector.
“The number of clients successfully completing debt counselling has increased by 60% per annum over the past four years. There’s no doubt that it works well to help people escape the burden of debt.”