Most South Africans use personal loans to make ends meet

Almost all South Africans who applied for debt counselling use personal loans to make ends meet, despite an improvement in consumer confidence and the rollout of the two-pot retirement system that provided some financial relief.

Consumers are using personal loans to make up the shortfall between income and the rising cost of living. Unlike the minister of finance, who can use taxes to make up the budget deficit, they have no other avenues to plug the shortfall.

According to the DebtBusters’ Debt Index for the first quarter of 2025, 91% of consumers who applied for debt counselling in the first quarter had a personal loan, a new record for the number of applicants who have a personal loan. Another 37% had a one-month loan, also known as a payday loan.

Benay Sager, executive head of DebtBusters, says it is clear that while consumers may feel a little more positive, personal loans, especially one-month loans, remain a lifeline for many because their income has not kept up with their increasing expenses.

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Price increases made it impossible to live without personal loans

Over the past nine years, electricity tariffs increased by 135% and the price of petrol by 88%, while the compound effect of inflation is 52%. As a result, consumers who applied for debt counselling in the first three months of the year needed on average 69% of their take-home pay to service their debt.

Sager points out that this is a significant increase compared to previous quarters and the highest since 2017.

The most vulnerable consumers, taking home less than R5 000 per month, use 76% of their income to repay debt, while people earning more than R35 000 spend 77% of their income to repay their debt.

According to Sager the ratios for these income groups are the highest since DebtBusters started analysing the data in 2016.

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Consumer debt in 2025 compared to 2016

Compared to 2016:

• Consumers now have 53% less buying power. Although the impact of inflation subsided recently, the average nominal income of incoming groups is now 1% lower than in 2016, and cumulative inflation over the nine years is 52%. However, there is better news for people taking home more than R35 000 per month as their nominal income increased by 11% since 2016, the first significant growth for some time.
• Consumers in most income bands spend 25% of their disposable income after paying their debt to pay for water, electricity, rates and transport. Food inflation has meant many had to sacrifice insurance cover. For people in lower-income groups, who spend a larger portion of their income on food, food inflation meant that they experienced inflation of 2% to 4% higher over the past few years.
• Top earners have unsustainable levels of unsecured debt. On average, unsecured debt levels are 34% higher than nine years ago, but for people taking home more than R35 000 per month, it increased by 90%, the highest ever.

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Fewer enquiries about debt counselling

Sager says debt counselling enquiries were ‘a bit muted’ during the first quarter of 2025 compared to previous years. He attributes this to uncertainty about the macroeconomic environment, access to retirement funds and ‘some negative marketing against debt counselling’.

“Debt counselling is still the best way to help consumers restructure their debt. While the average interest rate for unsecured debt has come down from an eight-year high to 25.3%, under debt counselling, it can be reduced to ~2.5% per year, allowing consumers to repay expensive debt faster.

“Vehicle debt and balloon payments can also be paid over a meaningful period by getting the average financed vehicle interest rate of 14.9% a year negotiated down to a more manageable level.”

According to Sager, the number of consumers who completed debt counselling increased 11-fold since 2016. Consumers who received their clearance certificates in the first quarter of 2025 paid back over R700 million to their creditors.

“Interest in online debt management was up by 6% during the quarter compared to the same period last year, with subscriptions for DebtBusters’ online proprietary tools, Debt Radar and the Debt Sustainability Indicator, now exceeding 1 million.”