South Africans were on average, spending slightly less of their take-home pay to service debt, but debt-to-income ratios were still high and unsustainable for those in the top income bands.

These were some of the findings from DebtBusters’ Q3 2023 Debt Index, a quarterly review of data drawn from debt-counselling applications.

DebtBusters executive head Benay Sager said that there was a slight reduction in the median annual debt-to-income ratio, from 115% in the third quarter of 2002 to 108% in the third quarter this year, it was was welcome, as it was coming off elevated levels.

“While the debt-to-income ratio for those earning R20 000 to R35 000 a month has reduced from 150% in the second quarter to 140% in the third quarter of 2023 and that of people taking home R35 000 or more from 189% to 164%, these ratios continue to be at unsustainable levels.

“Although it’s the first time in a while we’ve recorded a decline, it’s off a high base. In the second quarter of 2023, the ratios for these income tiers were the highest they’ve been since 2016,” Sager said.

Demand for debt counselling and online debt management continues to grow, with debt counselling enquiries up, by 28% compared to the third quarter of last year. The use of online debt-management tools increased by 65%, with particularly younger consumers using these to manage debt more pro-actively.

Sager said sustained high interest rates have increased the burden of servicing asset-linked debt. The average interest rate for a bond had risen from 8.3% in the fourth quarter 2020 to 12.4% in the third quarter of this year.

The average interest rate for unsecured debt is now at an eight-year high of 25.5%. “It’s telling that 96%, nearly all, the people who applied for debt counselling during the quarter had a personal loan, and 20% had a short-term loan.”

Compared to the same period in 2016, consumers who applied for debt counselling in the third quarter of 2023 had 40% less purchasing power.

Nominal incomes were 1% higher than seven years ago, but cumulative inflation of 41% over that time means that in real terms take-home pay buys 40% less than in 2016.

On the higher debt-service burden, the report found that, on average, consumers are spending 63% of their take-home pay to service debt. Those taking home R35 000 or more need to use 67% of their income to repay debt.

The report found that on average unsecured debt was 21% higher than in 2016. While the average level of unsecured debt is better than in some recent quarters, for those taking home R35 000 or more, unsecured debt was up by 42%. “This is on par with inflation and is evidence that, in absence of meaningful salary increases, consumers are using credit to supplement their income,” it said.

According to Sager, debt counselling could reduce the interest rates on unsecured debt by over 90%, from an average of 25.5% to less than 2%. This allowed consumers to pay back expensive debt faster, and gave them breathing room to buy daily necessities.

“Debt counselling is proven and effective, and this time of year, just before the festive season is the best time for those who need it to apply for debt counselling."

He said the number of people completing debt counselling has increased eightfold over the past seven years. "Consumers who received their clearance certificates in the third quarter of 2023 paid back over R500 million to their creditors. Debt counselling helps consumers manage their debt effectively and be on the road to good credit in the long term," he said.

PERSONAL FINANCE