The economy is showing signs of a turnaround, and consumers can take advantage of improving conditions by reducing their high debt levels, says John Manyike, Head of Financial Education at Old Mutual.

Although external forces may derail progress, the current outlook for South African households is positive. This optimism was boosted by President Cyril Ramaphosa in his State of the Nation Address on 6 February 2025, when he spoke about the Government of National Unity’s Medium Term Development Plan to “drive inclusive growth and job creation, reduce poverty and tackle the high cost of living, and build a capable, ethical and developmental state”.

A primary factor in the economic turnaround has been the decline in inflation over the past two years and the consequent reversal of the interest rate cycle. After reaching highs of around 7.5% at the end of 2022, Consumer Price Index inflation hit a low of 2.8% in October 2024, and economists expect it to stabilise at about 4.5%, according to the Bureau for Economic Research. In response, the SA Reserve Bank has gradually lowered the repo rate, from 8.25% in the middle of 2024 to 7.5% in January 2025.

However, South Africa’s household debt-to-income ratio (the average percentage of disposable household income that goes towards paying off debt) remains unacceptably high. In fact, the ratio increased slightly, from 62.1% in the second quarter of 2024 to 62.2% in the third quarter, according to the Reserve Bank’s latest Quarterly Bulletin.

Manyike says that as economic conditions improve, your debt should become easier to manage, provided you don’t take on more credit, which is tempting to do at the lower rates. He has the following tips for South Africans:

1. Keep track of your expenses. “Track your spending patterns by analysing your bank statement and drawing up a realistic monthly budget,” Manyike suggests. “Prioritise your expenses according to your needs, not your wants. This will help you to cut non-essential spending.”
2. If the rate drops on your bond or loan, keep your payments constant. “While remaining level financially, you can substantially reduce the term of the loan,” Manyike says.
3. Avoid building debt on your credit card. “Try to pay off the full amount on your credit card each month. This type of debt has a high interest rate, and if you pay only the minimum required monthly amount, the balance owing builds up very quickly, with compounding working against you,” Manyike says.
4. Try the snowball method to reduce debt. Manyike says this involves first paying off the smaller debts that have higher interest rates, such as credit card balances, store accounts and personal loans. The money you save when these are paid off then goes towards larger debts such as vehicle loans and your mortgage bond.

“The average household uses almost two-thirds of its income to service debt. That is unacceptably high – South Africans must learn to live within their means,” Manyike concludes.