The latest DebtBusters Debt Index for the first quarter of 2024 highlights the adverse impact of high interest rates, inflation, and stagnant salaries on consumers' disposable income.
The index, compiled by a debt-counselling firm, indicates a concerning trend, with demand for debt counselling services spiking by 22%.
This surge is attributed to growing difficulties among consumers in meeting loan obligations while managing basic living expenses.
Data from the study reveals a significant decline in consumers' purchasing power, plummeting by 47% between the first quarter of 2016 and the first three months of the current year.
Meanwhile, the burden of debt servicing has intensified, with the average applicant for debt counselling allocating a staggering 62% of their net income towards debt repayment.
The strain is particularly acute for higher-income earners, with those earning above R20,000 per month facing a debt-to-income ratio of 127%, escalating to 172% for individuals earning R35,000 or more.
This debt burden primarily stems from home and car finance.
Benay Sager, executive head of DebtBusters, stressed the unsustainable levels of unsecured debt among top earners, which have increased by 41% since 2016.
This suggests a reliance on debt to supplement stagnant incomes, exacerbated by soaring interest rates, currently at an eight-year high of 25.7% per annum for unsecured debt.
“The average interest rate for unsecured debt is now at an eight-year high of 25.7% per annum. What also continues to be apparent is how higher-income earners are using credit to offset the dual impact of inflation and interest rates — now 475 basis points higher than in 2020,” Sager said.
"These consumers typically have more short-term loans than those in other income bands and devote a greater proportion of their income to repaying debt.”
South Africa's major banks are also feeling the repercussions, with approximately R98 billion in underperforming home loans, indicative of the strain on consumers caused by elevated interest rates.
Standard Bank, the country's largest lender, notes that the surge in interest rates since November 2021 has particularly impacted consumers repaying variable instalment loans like mortgages and vehicle finance, reports Business Day.
Despite these challenges, there is a silver lining. The increased uptake of debt counselling inquiries and online debt management tools reflects a proactive effort among consumers to attain financial sustainability. This trend signifies a positive step towards addressing financial distress and building resilience amidst economic pressures.
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