More than half of consumers who have applied for debt counselling rely on one-month loans or so-called payday loans to make ends meet.

The staggering 53% statistic was revealed by the country’s largest debt counselling and consolidation firm Debtbusters in its debt index for the second quarter of this year. The company’s executive head Benay Sager says the high cost of living remains an issue as finances are constrained by high electricity tariffs and fuel prices, influencing food prices and all other industries.

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ELECTRICITY AND FUEL

“Two of the major indicators; one being the electricity tariffs and the other one being the petrol price, have more than doubled in the last 8 years. What this means is, not only do these things hit our pockets in terms of what we pay but we get half of what we are paying for. So, same product but we just get half of it for the same price. Also, these 2 are major input costs so everything that we do and everything that we see (is impacted),” said Sager.

He said it is alarming to see the high number of people relying on these short-term loans.

“Unfortunately these loans, even though they are needed, they come at very high interest rates. We are seeing that on average, they’re averaging at around 26% per annum. To put this into perspective, your average home loan would be around 12% interest rate so now we are taking about something that costs more than twice,” said Sager.

Furthermore, Sager elaborated that 82% of people his firm assisted have personal loans which showcases the insurmountable pressure consumers are faced with.

However, it’s not all bad news. The median debt-to-annual-income ratio is stable and has been low for the last four quarters. While still high at 105%, it is much lower than levels seen in the past few years.

“We welcome this, as well as the fact that debt counselling enquiries are up by 18% and registrations for online debt-management tools has increased. It indicates more people are taking action to deal with debt,” said Sager.

THE Q2 DEBT INDEX FOUND THAT COMPARED TO THE SAME PERIOD IN 2016, PEOPLE WHO APPLIED FOR DEBT COUNSELLING:

• Had significantly less purchasing power: Since 2016 nominal income has increased marginally by 2% but the cumulative impact of inflation is 46%. This means that today’s pay packet buys 44% less than eight years ago.
• Have a high debt-service burden: On average, these consumers need 62% of their take-home pay to service debt. Those earning R35 000 or more a month spend 68% on debt repayment. Debt-to-income ratios for top earners are at or near the highest-ever levels. For people taking home more than R20 000 a month the ratio is 128%, and for those earning R35 000 or more it is 167%.
• Have high levels of unsecured debt if they are top earners: On average, unsecured debt levels were 12% higher than in 2016; however, this is lower than in recent quarters and is a positive trend. For those taking home R35 000 or more, unsecured debt levels were 38% higher than eight years ago. While this is on par with inflation, in the absence of meaningful salary increases, it indicates consumers need to supplement their income with unsecured debt.