Personal loans have become a lifeline for more South Africans over the past seven years and debt to income ratios for top income earners are at an all-time high.

These were some of the findings from DebtBusters’ Q2 2023 Debt Index, a quarterly review of data drawn from debt counselling applications.

DebtBusters head Benay Sager said while the South African Reserve Bank did not increase interest rates in July after a better than expected inflation forecast, there were 10 successive interest rate increases since November 2021.

“The collective impact of rising inflation and interest rates on consumer finances is evident in the Q2 2023 data,” he said.

“Average loan size has increased by 78% since 2016 and 95% of consumers who applied for debt counselling during the second quarter had a personal loan.” 

Sager said unsecured debt was on average 26% higher than in 2016 and 39% up for those taking home R20,000 or more a month.

“It is clear consumers are using unsecured credit to supplement their income.”

He said inflation is the reason people are borrowing to make ends meet. 

Though nominal incomes are 1% higher than in 2016, cumulative inflation growth of 39% over the past seven years means in real terms people’s spending power has diminished by 38%.

“To understand the pressures consumers are facing, consider what has happened to just the prices of petrol and electricity since 2016. The petrol price has almost doubled and the cost of electricity has gone up by 90%.

“A consequence of people borrowing more to make it through the month is they are spending more of their income to service debt — on average 66%.”

Those taking home more than R20,000 per month have a debt to income ratio of 150% while the ratio for those taking home R35,000 or more is 189%. 

Sager said these ratios are the highest they have been since DebtBusters began analysing debt counselling applicants’ data in 2016.

“Given these alarming ratios, it’s no wonder consumers are feeling more financially stressed.

DebtBusters’ annual Money Stress Tracker, one of the largest surveys about how financial stress affects other aspects of South Africans' lives, found respondents who said they were stressed about money had increased from 70% in 2022 to 78% this year. 

Of these, 94% said financial stress was affecting their home lives, 78% their work life and 77% believed it was affecting their health.

Sager said the number of consumers successfully completing debt counselling had increased more than seven-fold since 2016.

In Q2 2023 alone, consumers who received their clearance certificates paid back more than R450m worth of debt to creditors.

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