With inflation surging and the recent interest rate hikes, there has been 17 percent more South Africans who are actively seeking debt counselling, according to Debt Busters.
DebtBusters says it has seen an increase of 17 percent in inquiries compared to the second quarter of 2021.
DebtBusters’ most recent Debt Index report for the second quarter of 2022 is compiled from data provided by clients who have applied for debt counselling.
Benay Sager, head of DebtBusters, told Business Report, that whatever the reasons, the fact that more consumers are actively seeking help is positive and that debt counselling is a tried-and-tested way of dealing with an unsustainable debt burden.
“Our recent Money-Stress Tracker survey showed that inflation was one of consumers’ top three financial concerns and has been cited as one of the main reasons for debt counselling enquiries.”
The second quarter 2022 Debt Index showed that without any meaningful increase in real income, South African consumers are still using unsecured debt to supplement their take-home pay.
While the ability to take on new credit may now be somewhat more constrained, as the slight decline in unsecured debt levels indicates, the average loan size has increased by 28%.
When compared to 2016 data, the Debt Index shows that in Q2 2022 people who applied for debt counselling had:
- 34% less purchasing power: Nominal income was the same as in 2016, but when cumulative inflation over the past six years is considered, purchasing power declined by 34%. Inflation in 2022 is significantly higher than at any time since 2016. This combined with successive interest-rate increases and no income growth, will intensify the pressure on consumers.
- Higher debt-service burden: Consumers applying for debt counselling are spending about 63% of take-home pay to service their debt. Those earning between R10 000 – R20 000 per month are most feeling the pressures of both interest and inflationary increases. The overall debt-to-income ratio for this group, at 127%, is close to the highest recorded.
- Higher levels of unsecured debt: Unsecured debt levels were, on average, 22% higher than Q2 2016 but slightly lower than 2021 levels.
“In these circumstances, consumers need to do everything possible to reduce the cost of credit and protect their assets. For most consumers in such a situation, debt counselling is the best option available,” says Sager.
In the past six years, the number of consumers who have successfully completed debt counselling increased 8.5 times.
In Q2 2022 alone, those who received their clearance certificates had paid back R370 million worth of debt to creditors.
“A significant advantage of debt counselling is that the interest rates on unsecured debt can be significantly reduced. This allows consumers to pay back expensive debt more quickly.”
BUSINESS REPORT