Debt trap: SA consumers borrow more to make up income shortfall_1

The net income of South Africans had declined markedly in real terms since 2015, with consumers making up the shortfall by large-scale borrowing, according to debt management organisation DebtBusters. 


Average debt levels had increased 13% more than average level incomes, the company said on Thursday 6 February. 


The finding was one of many made by DebtBusters in its report for the last quarter of 2019. 

Higher-income earners bringing home 20% less in real terms


The report found that people who applied to the company for debt counselling during 2019 had, on average, 15% less real net income compared to those who applied in 2015.


“The picture for higher-income earners – those pocketing more than R20 000 a month – was worse. These consumers were bringing home 20% less in real terms than their counterparts in 2015,” said the company in a statement. 


The other “significant finding” was that consumers were funding their lifestyles by taking out considerable unsecured credit, to the extent that it was beginning to outweigh asset finance, such as home loans and car finance.


“On average unsecured debt levels are 40% higher on what we were seeing four years ago. For higher-income earners it is 50% up,” said DebtBuster COO, Benay Sagar. 

Debt-to-income ratio


The proportion of income required to service debt was stark evidence of the financial strain consumers faced, he added.


 The report found that in Q4 2019 DebtBusters’ clients needed 64% of their net income to repay debts.


The average client’s debt-to-income ratio was 110%, but for those earning R20 000 or more a month it was 134%.

National Debt Awareness Month


“This is unsustainable, and it has become worse over the past four years. It is why we’ve declared February National Debt Awareness Month,” said Sagar.


The company hoped the awareness initiative would enable consumers to recognise early warning signs that they may be over-indebted and to seek help, to inform them about the benefits of debt management and how it worked, and to learn from those who had escaped the debt trap. 


“Despite the concerning high level of over indebtedness, the good news is that South Africa has a sophisticated and effective debt counselling sector. The number of clients successfully completing debt counselling has increased by 60% per annum over the past four years. There’s no doubt that it works well to help people escape the burden of debt,” said Sagar. 


African News Agency (ANA); Editing by Desiree Erasmus