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Massive increase in unsecured debt as real income shrinks across all income bands

While payment holidays and lower interest rates provided South African consumers with significant short-term relief in 2020, DebtBusters’ latest debt index shows that real incomes have shrunk by up to 20% over the past four years and consumers reliant on unsecured debt were faced with a debt burden when payments recommenced.

DebtBusters’ Q4 2020 Debt Index, which was recently published as part of its National Debt Awareness Month campaign, indicates that unsecured debt is, on average, 32% higher than when DebtBusters began compiling the data in 2016, while the total debt-to-income ratio is the highest it has been in years.

Findings from the Q4 2020 Debt Index are:

In absence of meaningful increase in real income growth, SA consumers are supplementing their income with more unsecured credit. Compared to 2016, those clients who applied for debt counselling in Q4 2020 had:

  • Negative real income growth: Nominal incomes were 2% lower compared to 2016 levels, when cumulative inflation growth of 18% is factored in for the same period. Therefore, real incomes shrank by 20% over the four-year period.
  • Those taking home over R20 000 per month need to spend 60% of their monthly net income to repay debt, and their debt-to-income ratio is highest in years at over 130%.
  • Unsecured debt that was 32% higher than that in 2016 levels; for those earning R20 000 or more, the unsecured debt levels were +45% higher. This is a direct result of erosion of net income (take home pay) – consumers need to supplement this erosion with unsecured credit.

According to Benay Sager, Head of DebtBusters, the impact of the Covid-19 lockdowns means that many households that were just making ends meet are now struggling to pay their bills. However, he says it’s a positive trend that more people are becoming pro-active about their debt and seeking help, as enquiries about getting assistance with debt are up by 40% compared to the same period last year.

Sager highlights that another positive trend is that more men are becoming pro-active about their debt. Fifty-five percent of new applicants in Q4 2020 were male. “In a society where men often avoid talking about debt, are too embarrassed to ask for help or fear being stigmatised, this is good news. After all, if you’re struggling with debt, getting help is the responsible thing to do.”

Now to get men to ask for directions when they are lost.

Click here to download the DebtBusters media release.

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