More South Africans forced to live with credit cards, says debt advice group

DebtBusters told consumers the debt-to-income ratio skyrocketed in the second quarter of 2021.

  • Many consumers are seeking financial assistance due to the aftermath of Covid-19 lockdowns.
  • Reduced income due to interrupted economic activities over the past year has meant that many people’s ability to borrow has shrunk, according to debt advice group DebtBusters.
  • With real income running in the opposite direction of living expenses, more and more people have borrowed to supplement their income just to get by.

Consumers are facing severe debt pressure as the impact of the pandemic continues to be felt.

DebtBusters says the number of people approaching it with requests for debt advice rose 18% in the second quarter of 2021, compared to the same period last year when SA was under lockdown the most severe.

DebtBusters said while more people may be back at work now, many consumers are asking for help due to the aftermath of the shutdowns. Falling income due to intermittent economic activities over the past year has reduced many people’s ability to borrow.

“It is clear that the debt situation of South African consumers has deteriorated further recently. In the absence of a significant increase in real income growth, South African consumers continue to supplement their incomes with more unsecured credit,” DebtBusters wrote.

But the company also attributes this pressure on consumers to the long-running decline in real incomes in South Africa.

According to calculations by DebtBusters, while nominal incomes in the country have risen 3% from 2016 levels, cumulative inflation growth of 24% over the same period means that real incomes have fallen by 21%. during these five years.

With real income running in the opposite direction of living expenses, more and more people have borrowed to supplement their income just to get by. Unsecured debt, which includes credit cards, overdrafts and personal loans — debt typically used for consumption — has increased 32% for the average customer who came to DebtBusters since the second quarter of 2016. five years ago.

As debt mounts, more and more consumers must consistently spend around 60% of their take-home pay to service their debt, at least until they turn to debt counselors for debt relief. ugly.

DebtBusters said that in the second quarter, the debt-to-income ratio for all income brackets (among their clients) reached its highest levels yet. This is the percentage of a person’s gross monthly income that is used to pay their monthly debts.

Among their clients, the debt-to-income ratio averaged 122% across all income brackets. But for those who take home R20,000 or more per month, it has risen to 152%. In the second quarter of 2016, the debt ratio of these consumers was 126%.

“With all of that said, there is some positive news. The number of clients who have successfully taken debt counseling has increased sevenfold over the past five years,” DebtBusters wrote.

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