On average, South Africans are spending slightly less of their take-home pay to service debt, but debt-to-income ratios are still high and unsustainable for those in the top income bands.

These were some of the findings from DebtBusters’ Quarter Three (Q3) 2023 Debt Index, a quarterly review of data drawn from debt-counselling applications.

Benay Sager, the executive head of DebtBusters, says that while the slight reduction in the median annual debt-to-income ratio, from 115% in Q3 2002 to 108% in Q3 2023, is welcome, it is coming off elevated levels.

“While the debt-to-income ratio for those earning R20 000 to R35 000 a month has reduced from 150% in Q2 to 140% in Q3 2023, and that of people taking home R35 000 or more from 189% to 164%, these ratios continue to be at unsustainable levels. Although it’s the first time in a while we’ve recorded a decline, it’s off a high base. In Q2 2023, the ratios for these income tiers were the highest they’ve been since 2016,” Sagar says.

Demand for debt counselling and online debt management continues to grow, with debt counselling enquiries up by 28% compared to Q3 last year. The use of online debt-management tools increased by 65%, with particularly younger consumers using these to manage debt more proactively.

Sager says sustained high interest rates have increased the burden of servicing asset-linked debt. The average interest rate for a bond has risen from 8.3% in Q4 2020 to 12.4% in Q3 2023.

The average interest rate for unsecured debt is now at an eight-year high of 25.5%.

He adds: “It’s telling that 96%, nearly all, [of] the people who applied for debt counselling during the quarter had a personal loan and 20% had a short-term loan.”

Sager says that debt counselling can reduce interest rates on unsecured debt by over 90%, from an average of 25.5% to less than 2%.

This allows consumers to pay back expensive debt faster and gives them breathing room to buy daily necessities.

“Debt counselling is proven and effective, and this time of year, just before the festive season, is the best time for those who need it to apply for debt counselling. The number of people completing debt counselling has increased eightfold over the past seven years,” says Sager.

“Consumers who received their clearance certificates in Q3 2023 paid back over R500m to their creditors. Debt counselling helps consumers manage their debt effectively and be on the road to good credit in the long term,” he adds.