South Africans are under increasing financial strain and were taking on more debt to supplement incomes that had declined in real terms even before the Covid-19 crisis, a quarterly debt report showed on Friday.

The report by debt counselling organisation DebtBusters for the first quarter of 2020 shows that consumers who signed up for debt counselling had nominal incomes that were one percent higher than in 2016, but because of cumulative inflation growth of 19 percent, real incomes had declined by 18 percent.

Consumers were borrowing more to make up for the shortfall in real income growth,  DebtBusters’ chief operating officer Benay Sager said.

FINANCIAL management is comparing your actual inflows and outflows to your expectations or predictions (your budget), says the writer. Pexels

“There has been a substantial increase in average borrowing to supplement the decline in net income, with total debt up 33 percent on average compared to the same period in 2016,” Sager said.

“Total debt for top earners increased by 63 percent compared to Q1 (first quarter) 2016 levels.”

The report says the number of consumers with home and vehicle finance seeking debt counselling has grown substantially.

Those taking home R20,000 (about US$1,187) or more a month had an unsustainable debt to annual income ratio of 142 percent.

The number of credit accounts consumers had when applying for debt counselling showed they were getting over-indebted faster but were  also seeking help sooner, Sager said.

“The silver lining is that debt counselling is incredibly effective. The number of clients who have successfully completed the process has increased by 65 percent per annum over the past four years. The process works, and is a fantastic tool to help consumers who are overwhelmed with debt.”

-ANA, Editing by Stella Mapenzauswa