Consumers Borrow More to Make up Income Shortfall
What happens when prices go up but your income doesn’t? It seems that most people are simply turning to credit facilities to make us the shortfall to maintain their standard of living. Slowly they are getting deeper and deeper into debt just to stay at the same level of living.
One of SA’s largest debt counselling practices has released statistics that show that consumers are worse off now (on average) than 5 years ago.
The report shows that average debt levels increasing 13% more than average income levels. This is often due to consumers not receiving increases or because the real world prices of common items are higher than ever due to inflation. For many people that inflation level is outstripping any increases, they are receiving.
The report found that people who last year applied to the company (DebtBusters) for debt counselling had, on average, 15% less real net income compared to those who applied back in 2015. Those who earn a lot each month – over R20 000- have been taking the hardest knock and have seen a 20% decrease in “real” income vs expenses compared to back in 2015.
Benay Sagar, DebtBusters’ Chief Operating Officer says that these consumers are funding their lifestyles by taking out considerable unsecured credit, to the extent that this is beginning to outweigh asset finance, such as home loans and car finance.
The report shows that people who come to Debt Counsellors looking for help now have 40% more unsecured debt (things like credit cards and overdrafts) than in 2015. For those earning R20 000 or more that figure sits at 50% more. Most people are now using around 65% of their nett income to pay towards their debts each month before they spend a single cent on other stuff.
‘..their average client’s debt-to-income ratio was 110%’
Benay shared that their average client’s debt-to-income ratio was 110%, and was even higher for those who earn over R20 000, with that figure sitting at 134%.
National Debt Awareness Month
Debtbusters are now promoting February as National Debt Awareness Month in an effort to get consumers to realistically assess their debt situation and presumably actually do something about it. They are encouraging people to get to know more about the options they have when faced with overwhelming debt, such as debt review. It is better to realise you need to take action than to slowly dig yourself a deeper and deeper hole by relying on credit more and more.
Debt Review Is Helping More Than Ever
Those who have decided to make use of the debt review process often struggle to follow through with the commitment. This can be for a variety of reasons. In the past, many people have been signed up to the process without really committing by some marketing firms attached to certain disreputable debt counselling practices. The National Credit Regulator has been making efforts to curb such behaviour. [Read That Story Here]
Now, Debt Counsellors, like those at DebtBusters, are seeing more consumers both start and successfully finish the process. They report that the number of their clients successfully completing debt counselling has increased by 60% per annum over the past four years. These consumers are then leaving the process debt free and not overly reliant on credit just to make ends meet.
If you are struggling to get through each month without making extensive use of your credit facilities to pay for everyday items like food then you should talk to your local Debt Counsellor about your debt situation.