Debt Awareness Month: 'Consumers are being more proactive'
A new report shows that financial anxiety characterised the first half of 2024 while the second brought some relief to consumers.
February is National Debt Awareness Month, and now is the time to get your finances in order. The beginning of the year is the perfect time to set financial goals as people are usually more motivated.
Debtbusters released its Q4 2024 Debt Index on Tuesday. It shares some interesting insights about debt and debt management.
The good news is that South African consumers are being proactive about tackling their debt. They got some relief in the second half of 2024, with positive news about inflation, interest rates and load-shedding.
Access to retirement funds further buoyed consumer finances. Since September 2024 about two million consumers accessed retirement savings.
Against this backdrop, Debtbusters’ Q4 2024 Debt Index found that demand for online debt management was up 9% and debt counselling enquiries for the full year increased by 8% over the prior year.
ALSO READ: More than half of South Africans spending 40% or more of income on debt, survey finds
Benay Sager, executive head of DebtBusters, says that 2024 was a year of two ‘chapters’.
The first was full of financial anxiety: load shedding, high interest rates, high food inflation, and worries about the upcoming national election.
The second ‘chapter’ was one of financial relief: no load shedding, lower food inflation, relief about the formation of a coalition government and being able to access retirement funds via a ‘two-pot’ system. As a result of this positive second half, 2024 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,” says Sager.
Under debt counselling, rates for unsecured debt can be renegotiated; often resulting in reduction from 24,6% to ~2,5%. This allows consumers to pay back expensive debt faster. Interest on vehicle debt and balloon payments, which average 15,4% can be negotiated down and the period extended.
ALSO READ: SA’s middle class sinking deeper into debt
The Debt Index also found Q4 2024 to be the second consecutive quarter where the median debt-to-annual-income ratio increased from all-time lows. Currently, this figure is 113%, indicating that consumers are still experiencing the effects of interest rate increases that began in November 2021, and despite some respite, remain elevated.
“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,” says Sager.
Compared to 2016, when DebtBusters began collecting and analysing data, consumers who applied for debt counselling in Q4 2024 had:
- Forty-two per cent less purchasing power. Although nominal incomes were 2% higher than eight years ago, when cumulative inflation of 44% is considered, in real terms, spending power is down 42%.
- A higher debt-service burden: On average, before entering debt counselling, consumers spend 68% of their take-home pay to service debt. Those making R35 000 or more per month need 74% of their income to repay debts. The debt-to-income ratio for those earning R20 000 per month is 137% and 187% for people taking home R35 000 or more. For these income bands, the ratios are at the highest-ever levels.
- Unsustainably high levels of unsecured debt: Unsecured debt is, on average, 29% higher than in 2016. For those taking home more than R35 000 per month, it is 60% higher. This shows that in the absence of any meaningful salary increases, consumers are supplementing their income with unsecured debt.
Sager says the subscriber base for free online debt-management tools reached over a million in 2024. Given the demand for proactive debt management, DebtBusters has added more features to these tools. Later this year it plans to launch MoneySavers to help its clients save money on everyday purchases.
Consumers can register for free self-help tools here.
ALSO READ: Six tips for a debt-free lifeInsert block
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