Debt counselling inquiries surged as South Africans seek solutions to financial challenges.
Image: Freepik
The Debtbusters’ Q4 2024 Debt Index has revealed that the demand for online debt management was up 9% while debt counselling enquiries for the full year increased by 8%.
This was against the backdrop of South African consumers finding relief in the second half of 2024 due to positive news about inflation, interest rates and load-shedding while access to retirement funds gave their finances an extra boost.
According to Benay Sager, executive head of DebtBusters, 2024 was a year of two chapters:
- The first chapter was full of financial anxiety due to: load shedding, high interest rates, high food inflation, and worries about the upcoming national election.
- The second chapter was one of financial relief with no load shedding, lower food inflation, relief after the formation of a coalition government and having access retirement funds through the two-pot retirement system.
Due to the positive second half of 2024, last year was a better year than 2023 for South African consumers.
"The increasing use of online debt-management tools indicated consumers are being more proactive about debt before it gets out of control. The data also points to more people considering debt counselling as an effective way to deal with debt in a high-interest environment," Sager said.
The index also found that Q4 2024 was the second consecutive quarter where the median debt-to-annual-income ratio surged from all-time lows.
Currently, this figure is 113%, which suggests that consumers are still experiencing the effects of interest rate increases that began in November 2021, and remain elevated despite some respite.
Sager said: "Eighty-two per cent of those who applied for debt counselling during the quarter had a personal loan and 52% a one-month loan. This indicates that consumers continue to supplement their income with short-term loans and personal loans have become a lifeline for many people."
Compared to 2016, when DebtBusters began collecting and analysing data, consumers who applied for debt counselling in Q4 2024 had:
Although nominal incomes were 2% higher than in 2016, when cumulative inflation of 44% is considered, in real terms, spending power is down 42%, according to DebtBusters.
On average, before entering debt counselling, consumers spend more than half of their take-home pay (68%) on servicing debt.
People that make R35,000 or more per month need 74% of their income to repay debts while the debt-to-income ratio is 137% for those earning R20,000 a month and 187% for people taking home R35,000 or more.
Unsecured debt is, on average, 29% higher than in 2016.
For consumers who take home more than R35,000 per month, it is 60% higher which shows that in the absence of any meaningful salary increases, consumers are supplementing their income with unsecured debt.
IOL Business
Related Topics: