Inflation up, consumer debt growing as salaries shrink 25% since 2016

Many South Africans are now facing a perfect storm of rising interest rates, growing inflation and 25% less take-home pay than they had in 2016.

This grim picture was painted on Tuesday by Benay Sager, head of the country’s largest debt counsellor, DebtBusters, in a media briefing to share an analysis of the firm’s debt counselling enquiries during the last quarter of 2021.

Though nominal income is only slightly lower than in 2016, when cumulative inflation of 24% over the six-year period is factored in, Sager said, real income has shrunk by 25%. This while the average loan size has increased by 45%. Consequently, consumers continue to supplement their earnings with unsecured credit — personal loans, store credit, credit cards, overdrafts and the like.

For consumers taking home R20,000 or more a month, unsecured debt levels were 43% higher than in 2016, Sager revealed.

“This indicates that these consumers are using unsecured credit to supplement the erosion in their real income.”

Demand for debt counselling in the fourth quarter of 2021 rose by 18% compared to the same period the previous year.

This trend intensified in the first month of 2022, with enquiries increasing by a staggering 32% compared to January 2021.

Sager attributed last month’s spike in applications in part to consumers wanting “a way out” of the inevitable further interest rate hikes.

Under debt counselling, interest rates on unsecured debt can be reduced by more than 90% from an average of 21.5% to 1.2%, Sager said. This allows consumers to pay back expensive debt more quickly.

On average, consumers got to the point where they were spending about 62% of their take-home pay on servicing their debt before they applied for debt counselling.

Based on DebtBusters’ data, on average those taking home R20,000 or more a month need to use two-thirds of their income to repay debt. Their debt-to-income ratio was an alarming 146%.

On average that ratio was 117% in the last quarter of 2021.

While that figure is comparable to that in other countries — Australia’s is 202%; the US’s 101% and the UK’s 148% — in those countries home loans with very low interest rates account for most of that debt, but in SA, it was mostly “very expensive unsecured debt”, Sager said.

There was some good news to be found in DebtBusters’ stats. “We’ve found that after the lockdowns, the end of the 2020 payment holidays and a diminished ability to borrow, more consumers are proactively seeking help to manage their debt,” Sager said.

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