In South Africa, recent data from DebtBusters’ Q3 2023 Debt Index reveals some encouraging trends regarding consumer debt, although challenges remain. On average, South Africans are spending slightly less of their take-home pay on debt repayment, which is a positive shift in the personal finance landscape. However, the high debt-to-income ratios, notably among higher income brackets, continue to signify potential financial strain.
DebtBusters executive head Benay Sager highlighted that the median annual debt-to-income ratio dropped from 115% in Q3 2022 to 108% in Q3 2023—a move in the right direction, but still concerningly high. For those earning between R20,000 and R35,000 per month, the ratio decreased from 150% to 140%, whereas individuals making R35,000 or more saw their ratios fall from 189% to 164%. While this decline is promising, it’s important to remember that these figures represent elevated levels compared to historical norms.
The demand for debt counseling and online debt management tools is increasing, indicating that consumers are becoming more proactive in managing their financial burdens. Debt inquiries surged by 28% compared to the same quarter last year, while usage of digital debt management tools shot up by an impressive 65%, particularly among younger individuals who are keen on taking charge of their financial well-being.
Nonetheless, high interest rates have exacerbated the situation for borrowers. The average interest rate on bonds climbed from 8.3% in late 2020 to 12.4% in Q3 2023. Furthermore, the average rate for unsecured debt has reached a staggering 25.5%, marking an eight-year high. This means that nearly all applicants for debt counseling reported having personal loans, with a significant portion also holding short-term loans.
A concerning trend also emerged when comparing consumer purchasing power between 2016 and now; those seeking debt counseling now find their purchasing power diminished by 40%. Despite nominal income increases being 1% higher than seven years ago, the cumulative inflation of 41% effectively means that consumers are feeling the pressure, as their money simply doesn’t stretch as far.
Interestingly, the report shows that consumers are allocating an average of 63% of their income to debt servicing, which rises to 67% for higher earners. Unsecured debt levels are also noticeably higher compared to 2016, with a 21% increase on average. For those earning R35,000 or more, unsecured debt escalated by a staggering 42%. This suggests a reliance on credit to bridge the gap in incomes that have not kept pace with inflation.
However, hope does exist. Debt counseling has proven to be an effective solution, potentially slashing interest rates on unsecured debt from the average of 25.5% down to less than 2%. This enables consumers to pay back high-interest debts more swiftly and allows them some financial breathing room to cover daily necessities.
As we approach the festive season, Sager encourages individuals struggling with debt to consider debt counseling. The process has seen an eightfold increase in the number of people completing it over the past seven years. Remarkably, consumers who obtained their clearance certificates in Q3 2023 repaid over R500 million to their creditors, exemplifying the true potential of this process to help individuals regain control over their finances.
Overall, while there are positive developments in South Africa’s debt landscape, it remains evident that consumers will need to remain vigilant and proactive in managing their finances in the face of ongoing economic pressures.
#SouthAfrica #PersonalFinance #DebtManagement #WorldNews
