*Ntokozo, a general retail store manager, was in so much debt that he had to cancel his parents’ funeral cover, car insurance and cut down on buying red meat.
Even these sacrifices did little to dent his debt which had swallowed him to a point that he surrendered himself to unchartered waters of seeking debt counselling with the hope of getting some reprieve.
Ntokozo, 45, is among a big group of South African consumers who sought help through debt counselling last year.
According to Benay Sager, head of debt counselling firm DebtBusters, there was a 53% jump in debt-counselling inquiries in the last three months of 2022 from the previous year.
Online inquiries also shot up by 130%. The number of those who actually take up their services also saw a spike last month while the lending activities between financial institutions and consumers significantly increased with the average of loan size going up by 31%.
With February being the National Debt Awareness Month, the firm released its latest debt index, which showed that many people were starting to become more aware of their pockets and had become more proactive in tackling their debt.
The index also showed diminished purchasing power among those who take home in the region of R20,000 per month.
With an income of nearly R30,000 a month, Ntokozo said he started feeling the pinch during the height of Covid-19 in 2020 when his employer could not pay him his full salary, resulting in 15% reduction to his monthly earnings for about eight months.
“It was tough. I saw myself struggling to do things that I’d normally do with my family like going out to restaurant every third week or getting takeaways for dinner. It soon escalated to me not being able to meet my monthly expenses and I started defaulting on my bills and I was behind on clothing account and credit card,” he said.
“I then took a difficult decision of cancelling my parents’ funeral policy which I took out six years ago. When I started getting my full salary, I had to play catch up with my debts but it was difficult until I couldn’t take it any more and I signed up for debt counselling,” explained Ntokozo.
He said his situation was worsened by his wife losing her job in 2021 after her employer had to close shop due to the lockdown.
SA lost two million jobs between 2019 and 2021 due to the adverse impact of Covid-19 lockdowns and consistent power blackouts. In 2021 alone, the country lost 479,000 jobs, according to PwC’s Global Workforce Hopes and Fears Survey of 2022.
Added to this, many consumers had to deal with the increase of interest rates, inflation, fuel and food prices.
“The full impact of successive interest rate increases since November 2021 and elevated levels of inflation is now fully evident in consumer finances. With interest rate increases, lending activity has increased: average loan size has increased by 31% in a few years and virtually all consumers (96%) who applied for debt counselling in the fourth quarter of 2022 had a personal loan, both indicating that consumers continue to supplement their income with unsecured credit, and personal loans have become a lifeline for many,” says Sager.
He further adds that compared to those who signed up for debt counselling in 2016, the new applicants had lesser purchasing power, higher debt service burden and unsustainably high levels of unsecured debt.
“Because of accumulative inflation since 2016, these people are now taking home 33% less of their salaries today. Consumers need to spend about 63% of their take-home pay to service their debt before coming to debt counselling – those taking home R20,000 or more per month need to use 68% of their income towards debt repayments.
“Unsecured debt levels were on average 21% higher than those in 2016 levels. This is a direct result of erosion of net income (take-home pay): consumers need to supplement this erosion with unsecured credit,” says Sager.
According to Sager, loans have become a lifeline for many struggling households.
“About every debt counselling applicant we received had a personal loan and the other 20% had a short-term loan or payday loan. What this means is that consumers are struggling to supplement their income and this increases the average debt of consumers.
“This does not mean that lending is not done properly by banks, it means that consumers may get into a rut and may say loans are the only way to get out of trouble. What they are not tapping into is exploring opportunities to reduce their expenses as opposed to increasing their income through loans and often that loan is going to be far expensive than any other means.
“Rather find ways to reduce your monthly expenses than adding more to your debt pile,” adds Sager.
* Not his real name
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