Debt servicing costs hit all-time high

15 April 2015

Summary:

  • The South African debt crisis continues
  • The cost of debt has risen to an all-time high for South African households
  • Low income earners have been hardest hit

DEBT SERVICING COSTS HIT ALL-TIME HIGH

Latest statistics (based on Q4 2014) released in The National Credit Regulators’ Credit Bureau Monitor, reflects on the never-ending financial burden South African consumers face and the on-going debt crisis in South Africa.

Along with the noticeable industry growth in the average South African consumer’s appetite for debt, an ever-rising number of 10.26 million South African consumers have impaired credit records.

Intelligent Debt Management, the overarching business for the leading debt counselling companies DebtBusters and Consumer Debt Help, reflects on the current difficult financial times.

The cost of debt has risen to an all-time high for South African households:

Kelli Knutsen, Marketing Manager of DebtBusters states, “The cost of debt, as measured by average interest rate, has increased by 7-10% per annum for low and middle income Debtbusters’ clients, which shows the pressure these income groups are under.”

Low earners have been hit the hardest:

Knusten goes on to say “Debtbusters’ clients entering into the debt counselling process and earning less than R5k per month have been hardest hit, as the average interest rate for unsecured credit agreements increased from ~15% to ~24% in six years.”

Given that unsecured debt makes up an increasing proportion of average South African’s debt, the burden of servicing this debt has grown dramatically. Consumers need more money on a monthly basis to service their debt as it becomes more expensive.

“The same income group now need over 160% of their net monthly income to service their debt,” Knutsen adds.

Highlights:

  • The cost of debt, as measured by average interest rate, has increased by 7-10% per annum for low and middle income Debtbusters’ clients
  • For Debtbusters’ clients earning less than R5k per month, the average interest rate for the unsecured credit agreements increased from ~15% to ~24% in six years
  • Debtbusters’ clients earning less than R5k per month need over 160% of their net monthly income to service their debt

Written by: Kelli Knutsen (Marketing Manager, DebtBusters)

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