Spike in debt counselling enquiries as consumers take strain

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Interview starts at the 1:09 mark

JIMMY MOYAHA: According to the latest Q4 2023 Debt Index released by DebtBusters, South Africans are struggling, they’ve gone through increased enquiries for debt counselling, as well as online debt management assistance. I’m joined on the line by Benay Sager, who is the executive head of DebtBusters, to take a look at this. Benay, good day, thanks so much for the time. These numbers are obviously alarming, but what do they suggest about the state or the health rather of the South African consumer?

BENAY SAGER: I think the numbers need to be seen in context, as you say. We report on these every quarter because from a financial perspective, there is a cyclicality to everyone’s finances. But we also would like to take a different view on it in the sense that we can see an increased number of consumers really facing up to the financial situation and doing something about it. At the end of the day, we want people to use credit responsibly and pay back.

So going back to your question, what does this tell us, well, I think it tells us that we are really under a lot of pressure from inflation and interest rates, and I would also add the load shedding situation.

The three of them combined really are impacting the lack of growth in terms of average salaries. We see that hasn’t grown over the last six or seven years.

We see that interest rates have grown dramatically over the last three years in particular, particularly for bonds, the average bond interest rate was about 8.3% per annum three years ago, now it’s about 12.3%. I’m sure your listeners would know exactly what that means in terms of expected additional payments per month, somewhere between R2 000 to R5 000, depending on what size your bond is.

We also see that as a result of lack of growth and incomes, people are having to borrow so that they can put food on the table, and they can deal with the necessities of life to the extent that we’ve seen average unsecured debt size grow by about 32% compared to a few years ago. I think all of these are compounding, essentially in a way, making or helping South Africans spend a bit more time on their finances and understand avenues available to them, which debt counselling happens to be one.

JIMMY MOYAHA: You mentioned a couple of positives there around the consumers wanting to address some of these challenges. What have you seen in terms of notable patterns around that, are consumers paying down debt faster? Are they aiming to target certain debts?

BENAY SAGER: I think consumers are realising they’re in trouble sooner than they did before. So one of the things we track is when someone comes and enquires about debt counselling, what is the number of what we call in the business open trades, but credit agreements that they have that are open at that point in time, and we’ve seen that number inch down to six and stay there for the last few years. Previously it was eight or nine.

So what that means is I think people are realising sooner that they need help and they want to deal with it. So that’s one indicator.

The second thing is that I think if you look at the age categories that consumers are using the online debt management tools as well as applying for debt counselling, in both cases, we certainly see growth on both ends. So we see growth in terms of the younger consumers, let’s call it less than 30, and we see growth on the other spectrum, 45 plus. Now that may not be the best news in the world in the sense that ideally, we would have liked to have dealt with our debt situation by the time we get into our 50s, but it also shows that those consumers realise they’re getting close to retirement and they want to make sure that they deal with the expensive debt, which, by the way, half of the debt that we see is unsecured debt, and now it’s coming at around 25.6% average interest rate per annum, which is, I think we can all agree that’s very expensive debt. So that’s one of the reasons I think people are hopefully dealing with it sooner than they did before.

JIMMY MOYAHA: But with February being the National Debt Awareness Month in South Africa, the topic this year is financial sustainability, what does that look like?

BENAY SAGER: I think for different people it would look a little bit different, and it’s a great question. I think, for example, financial sustainability for someone who has an asset, it might be that they are comfortable that they have enough room to pay down that asset in the timeframe that they have been given, that they made a plan in place. For someone else, it could be that they can pay for their kids’ school fees without really worrying about it. For others, it would be learning to manage their credit score in such a way that in two to three, five years’ time, whenever it might be, they’re ready, they’ll be in a prime position to borrow from a cost of credit perspective.

I think all of these things really pushed us to think about what can we provide as online tools to help consumers see this. We built a number of tools on our website that are all free for consumers to really be able to see these things, whether it’s a sustainability index or what their credit score is compared to their peers.

I think the more people engage with the data that’s at their disposal, the better they will be able to (understand) in terms of what it means for them individually in terms of financial sustainability.

JIMMY MOYAHA: We’ll leave it at that. Thanks so much, Benay. That’s Benay Sager of DebtBusters on the latest Debt Index.