Consumers remain under severe pressure despite a lower inflation and interest rate environment, with personal loans now serving as a financial lifeline for many.
The ratio of income required to service debt is at its highest levels since 2017, the financial institution DebtBusters said in its second quarter Debt Index.
According to the Debt Index, 95% of people applying for debt counselling (a formal process to restructure debt) in the second quarter had at least one personal loan. A further 54% of applicants relied on one-month (payday) loans, which carried annual interest rates of more than 23%.
DebtBusters noted inflation remained driven by “regulated expenses” such as electricity and municipal rates.
On Wednesday, Stats SA reported headline inflation rose to 3.5% year on year and 0.9% month on month. The sharp monthly increase was driven by the annual municipal tariff adjustments, which saw electricity and other fuels climb 8.6% month on month while water-related services rose 6.5%.
Since 2016, electricity tariffs have more than doubled and are now 2.65 times higher while fuel is now 75% more expensive, DebtBusters said.
Municipal rates, especially in major metros, continue to rise in double digits each year.
According to Benay Sager, executive head of DebtBusters, expensive, high-interest personal loans are placing consumers under very real pressure.
“The average interest rate for unsecured debt is at 23% per annum. While lower than before, this rate is not possible to service for several years at a time.”
According to Sager, the median debt-to-annual-income ratio has increased to 112% after declining for most of 2024.
While nominal earnings have edged up just 2% in nine years, the compounded effect of inflation has reached 51%. That leaves consumers with 49% less purchasing power than in 2016.
This erosion is evident in the financial strain consumers are under: the share of take-home pay needed to service debt has now climbed to 70%, the highest level since 2017. For those earning R35,000 or more a month, the burden is even greater — they spend 78% of their net income on debt repayments. The debt-to-annual-income ratio for this group has reached 185%, also near record highs. According to the report, this is predominantly due to home loan and vehicle finance debt.
The latest BankservAfrica Take-home Pay Index (BTPI) for July also showed the nominal average take-home pay declined by 1.1% month on month. July marked the fifth consecutive monthly decline.
BankservAfrica also compared the average headline inflation with the nominal average increase in the BTPI since 2017, which showed that while salaries have recovered, they have not fully caught up after the weak years between 2021 and 2023.
Despite the strain, some forms of relief have helped consumers stay afloat — for now. These include consolidation loans (particularly among government employees), a series of recent interest rate cuts and the widely used two-pot retirement savings system.
More than 2.2-million South Africans have drawn on their retirement funds to meet urgent needs, reducing reliance on credit but potentially compromising long-term savings.
Still, unsecured debt is rising fast, particularly among higher earners. The report shows those taking home R35,000 or more a month now carry 79% more unsecured debt than in 2016 — a sign that credit has become an enduring supplement to income rather than a short-term solution.
After servicing debt, many households spend the bulk of their remaining income on essentials such as utilities, transport and food.
According to the household spending mix (where money goes after debt is paid), consumers earning between R20,000 and R35,000 spend about 48% of their disposable income on rent and groceries. This decreases for the group earning more than R35 000 — with 35% being swallowed by food and rent.
Still, there are signs of cautious optimism. The number of consumers completing debt counselling has increased 12-fold since 2016 and more than R770m was repaid to creditors in the second quarter alone by those exiting the programme.
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