Debt levels and Covid-19 – Is the worst yet to come?

DebtBusters’ latest debt index for Q2 2020 reveals that South African consumers’ debt levels continued to deteriorate over the lockdown, with higher-income earners having unsustainable debt-to-income ratios.

Benay Sager, DebtBusters’ chief operating officer, says that net incomes have declined in real terms and consumers are supplementing this by borrowing heavily, especially using unsecured loans.

Ask Afrika’s research also mirrors this fact as it shows that South African citizens are struggling. “During advanced level 3 of the lockdown, citizens have been mindful of their spending, with half having to borrow money to cope with the lockdown,” the Ask Afrika report states.

According to the debt index there are two clear trends that led to increased debt levels: a real-term decline in net incomes and consumers supplementing this by increased unsecured lending. “Although it’s impossible to determine the full impact of the hard lockdown based on just one quarter, the four-year-trend shows that for most consumers debt levels are steadily increasing,” Sager reveals. He blames this on the fact that nominal incomes have been flat so in real terms, people have less income than in 2016, as inflation over the same period has been around 20% cumulatively. “As a result of lack of growth in their net incomes, consumers find themselves in a corner and have been borrowing heavily, especially using unsecured loans, to make up the shortfall.”

He further points out that this is borne out by the increase in unsecured debt, which on average is 18% higher than it was four years ago. For consumers earning more than R10,000 per month, unsecured debt is 31% higher – for those earning R20,000 or more per month, the unsecured debt levels are 42% higher than 2016 levels. Consumers earning R20,000 or more a month had an unsustainable debt-to-income ratio of 138%. This is 12% more than during the same period in 2016.

Click here to download the DebtBusters report.

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