More South Africans forced to live off credit cards, says debt counselling group

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DebtBusters said consumers the debt-to-income ratio soared in the second quarter of 2021.
DebtBusters said consumers the debt-to-income ratio soared in the second quarter of 2021.
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  • Many consumers are seeking financial help because of the after-effects of the Covid-19 lockdowns.
  • Reduced income because of stop-and-go economic activities in the past year meant that many people's ability to borrow has narrowed, debt counselling group DebtBusters.
  • With real incomes moving the opposite direction of living expenses, more people have been borrowing to supplement their incomes just to get by.

Consumers are facing heavy debt pressure as the impact of the pandemic continues to hit home.

DebtBusters says the number of people approaching it with debt counselling inquiries rose 18% in the second quarter of 2021, compared to the same time last year when SA was under the harshest lockdown level.

DebtBusters said while more people might be back at work now, many consumers are seeking help because of the after-effects of the lockdowns. Reduced incomes because of stop-and-go economic activities in the past year meant that many people's ability to borrow has narrowed.

"It is clear that the debt situation of SA consumers has further deteriorated recently. In the absence of a meaningful increase in real income growth, SA consumers continue to supplement their income with more unsecured credit," wrote DebtBusters.

But the company also attributes this pressure on consumers to the long-standing decline in real incomes in SA.

According to DebtBusters' calculations, while nominal incomes in the country have increased 3% compared to 2016 levels, the cumulative inflation growth of 24% over the same period means that real incomes have shrunk by 21% over those five years.

With real incomes moving the opposite direction of living expenses, more people have been borrowing to supplement their incomes just to get by. Unsecured debt, which includes credit cards, overdrafts and personal loans – debt usually used for consumption – has increased by 32% for the average client who approached DebtBusters since the second quarter of 2016. Top earners' unsecured debt levels are now 49% higher than five years ago.

As the debt mounts, more consumers consistently need to spend around 60% of their take-home pay to service their debt, at least until they turn to debt counsellors for help.

DebtBusters said in the second quarter, the debt-to-income ratio for all income bands (among their clients) increased to its highest levels to date. This is the percentage of people's gross monthly income that goes towards paying their monthly debt obligations.

Among their clients, the debt-to-income ratio sat at the average of 122% across the income bands. But for those taking home R20 000 or more per month, it increased to 152%. In the second quarter of 2016, these consumers' debt-to-income ratio stood at 126%.

"With all this said, there is some positive news. The number of clients completing debt counselling successfully has increased by sevenfold over the last five years," wrote DebtBusters.

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