This quarters debt index has found that two years after the start of the coronavirus pandemic, nominal income has declined marginally. But, when we include inflation to the equation, we find that South Africans have much less disposable income. This has resulted in an increase in demand for debt counselling.

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Download the full Q1 2022 Debt Index here.

Based on the results from the report, DebtBusters said this to the public:

Rising inflation, interest rates add to financial pressure

Important for consumers to reduce the cost of credit and protect assets

Over the past six years a material decline in disposable income and a higher debt burden are contributing to the financial challenges many South Africans are facing.

This is manifested in increased demand for debt counselling, with enquiries up 32% compared to Q1 2021.

These are some of the findings in DebtBusters’ latest Debt Index. The quarterly debt report is compiled from data provided by clients who have applied for debt counselling.

The analysis found that two years after the start of the coronavirus pandemic, nominal income has declined marginally. But, when the effect of cumulative inflation over the past six years is considered, in real terms South Africans have 31% less disposable income.

According to Benay Sager, head of DebtBusters, consumers are making up the shortfall in real income by borrowing.

Unsecured debt levels are 20% higher than in 2016 and for those taking home more than R20 000 a month unsecured debt has increased by 54%, which is unsustainably high.

The consequence of this higher debt burden is that consumers need to spend about 62% of their take-home pay to service their debt.

More alarming is that for the top two income bands debt-to-income ratios are at their highest levels in the past six years. For those taking home more than R10 000 per month the ratio is 125% and it is 150% for those with take-home income of R20 000 or more per month.

Sager says that although the average loan size has increased by 27% over the six years the number of debt obligations has declined by 18%, indicating that while consumers have more debt per credit agreement, they are seeking help sooner.

He says that is particularly important in an environment where both interest rates and inflation are increasing.

“In these circumstances, consumers need to do everything possible to reduce the cost of credit and protect their assets. For those unable to do so without help, debt counselling is the best option available.”

While under debt counselling, unsecured debt interest rates can be reduced significantly, allowing consumers to pay back expensive debt more quickly. Last year this enabled DebtBusters’ clients to pay back R2 billion to creditors.

The number of consumers who successfully finish debt counselling today is nine times higher than in 2016. In fact, consumers who finished debt counselling in Q1 2022 paid back R400 million while they were under debt counselling, showcasing the success of the programme.

Sager says that there has been a noticeable increase in men applying for debt counselling. In Q1 2022, 57% of new applicants were male compared to 48% in the same period in 2016.

Note to editors DebtBusters is South Africa’s leading and largest debt counsellor and holds the 2021 Debt Review industry award for the best national debt counselling company — the sixth time it has won in eight years. For more information visit www.debtbusters.co.za

Benay Sager,

Head of DebtBusters