Many households are struggling to repay their loans while unsecured debt is on average 32% higher than it was five years ago. According to the DebtBusters fourth quarter Debt Index released today; the debt-to-income ratio is at 130%, its highest level in years as a result of the impact of COVID-19 and lockdowns.

Head of Debtbusters Benay Sager says borrowing has increased by 32% to supplement current eroding incomes due to salary cuts and job losses.

The latest index shows consumers are under enormous strain to repay their debt. This is despite payment holidays and successive repo rate reductions given by the Reserve Bank last year. The index was published as part of Debt Awareness Month.

Sager says middle income and low-income consumers have been the hardest hit.

“It doesn’t vary a lot in terms of what share of the net income consumers need to service their debt. Worrying about this is that those earning R10 000 in particular and those earning less than R5 000, it’s extremely high for them and they actually have no breathing room. They really have to pay high-interest rates and as a result, it really takes a portion of their net income every month when they try to pay it.”

Real incomes shrunk across all income brands and in some cases up to 20% compared to 2016 levels.

Many consumers lost their jobs last year or took pay cuts and this is reflected in the new data.

“People were earning R100 when they came to us in 2016 for debt counselling. When you strip out the impact of inflation, right now they are earning R98. So, their net income has gone backward and this has been accelerated by what has happened with the pandemic over the last year and on the backdrop of things getting more expensive consumers need to supplement this drop in income with something else and that something else seems to be unsecured debt.”

The coronavirus has affected South Africans’ incomes negatively: 

Sager says people taking home over R20 000 per month spend 60% of their monthly income to repay their debt.

At 130% the debt-to-income ratio is at its highest level in years.

“Debt levels compared to the net income, you can see a steady increase and this is predominately due to unsecured debt, but also decrease in terms of net income for the consumers. So, this means every single individual that has walked through our doors had to use at least 61% of their net income to service their debt. You can imagine, this is not possible. This is not sustainable and they should really be using at most 40% of their net income to service their debt.”

Young people are also feeling the pinch:

Benay says there is some good news on the horizon as consumers with assets have stayed away from debt counselling as a result of interest rate cuts.

In the second and third quarters of last year, more consumers had extra cash in their pockets due to repo rate deductions.

However, consumers with unsecured debt did not get this relief.

Benay says they now see more and more consumers with unsecured debt asking for help and payment pause.

“A lot of consumers are seeking debt counseling and in April to June period, we had probably 10% of the book who had requested some sort of a payment pause and 80% of those consumers have come back with some sort of full payment status, which is great news for them to come out of debt counselling and still reap the benefits of the process and it is also good news for us to have supported them.”