Consumer debt a concern for high-income earners during lockdown

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High-income earners are borrowing heavily to supplement their income, according to the findings of a second-quarter assessment conducted by the largest debt counselling company Debt Busters.

Debt Busters also revealed that the number of people undertaking debt counselling has grown by 40% per year.

The debt levels of consumers continue to skyrocket during the lockdown with high-income earners in particular under significant debt pressure. These are individuals earning more than R20 000 a month.

The assessment revealed that these consumers’ debt to income ratio is unsustainable at 138%. This is mainly due to the fact that their income has not been increasing over the last few years.

According to the survey, the unsecured debt levels of those earning more than 20% or 42% are higher than in 2016.

Click video below, high-income earners are borrowing heavily to supplement their earnings:

Debt obligations

Unsecured debt is expensive as there is no collateral against the loan. You could pay interest of up to 24.50% per year. And there are fears that over-indebted consumers might not be able to honour their debt obligations.

The escalating costs of electricity, petrol price and health care are forcing consumers to dig deep into their pockets. Many consumers who have taken a payment holiday over the last three months are faced with the burden of paying high interest.

About 22% of the consumer’s debt is for vehicle finance. Home loans account for 34% of the debt and unsecured loans such as credit cards and personal loans constitute 44%.

Debt Buster says many consumers who have opted to undertake debt counselling are struggling to meet their monthly vehicle instalments especially those buying a car with balloon payment.

Many people use credit to buy things that they won’t be able to pay cash for such as a house or a car. But you can avoid using credit to supplement your income if you live within your means and regularly monitor your expenditure.

The company says if you must take a loan always ensure that it is for a good cause such as paying for education and make sure that you understand the terms of your contract and the interest that you are going to be charged.