As interest rates and inflation continue to rise, DebtBusters’ latest Debt Index for the first quarter of 2023 reflects a 40% year-on-year increase in demand for debt counselling.

Benay Sager, head of DebtBusters, says he expects the trend to continue for the rest of the year as the full impact of successive interest-rate increases since November 2021 and elevated levels of inflation are now fully evident in consumer finances.

“As interest rates have risen, credit has become burdensome for many consumers. Average bond interest rates have increased from 8.3% to 11.4% per annum and average vehicle finance rates rose from 12% to 14.8% over a short period.

“This means if you have a R1-million bond and owe R200,000 in vehicle finance, you are expected to pay nearly R5,000 more per month,” said Sager.

“The steep increase is pushing consumers to tap into more personal loans. Nearly everyone (96%) of people who applied for debt counselling had a personal loan. This indicates consumers are supplementing their income using unsecured credit and personal loans have become a lifeline for many South Africans.”

When compared to the first quarter of 2016, before Covid was even a thought, the Debt Index shows that consumers who applied for debt counselling in the first quarter of 2023 had:

• 38% less purchasing power: Although nominal incomes were 2% higher than in 2016, cumulative inflation growth of 40% means that people are taking home 38% less in real terms than they did seven years ago. Over the same period, the petrol price has almost doubled and the cost of electricity has gone up by a shocking 90%.
• Unsustainably high levels of unsecured debt: Unsecured debt levels, on average, have increased by 30% since 2016 but are 67% higher for people taking home R20,000 or more. Although the volume of unsecured loans has declined by 13% since 2016, the average loan size has grown by 34%.  This indicates that although the lending-risk appetite is not back to pre-pandemic levels, larger loans are being granted to the same number of consumers.

Sager says the good news is the massive increase in younger consumers subscribing to DebtBusters’ online debt management tools.

“This is very good news. These consumers generally have less debt burden and are using free online tools to manage their debt more proactively. By doing so early in their careers, management of debt becomes entrenched as part of daily life and they are less likely to have difficulties with debt later on.”

In the first quarter of this year alone, consumers paid back more than R406-million worth of debt to creditors as part of the debt counselling process.

Consumers turn to bulk purchases

At the same time, retailers are reporting that consumers are actively looking at savvy ways to shop to make their rand stretch further.

General merchandiser, Game, says there has been a specific uptake on its More4Less bundle deals, which are aimed at giving consumers notable discounts on everyday essentials with bulk purchases of dry groceries, toiletries and household items.

Some of the best sellers in the first quarter of this year included three packs of 5 x 73g instant noodles, 2 x 1.2kg packs of Corn Flakes, 3 x 75m toothpaste and 3 x 750ml dishwashing liquid.

Andre Steyn, vice president at Game, says the offering has never been more relevant, with sales growing by 15% in the first quarter of 2023 alone.

“The South African shopper now has no choice but to bargain hunt and ensure they are getting the best price on essentials. Our research shows a massive shift in spending habits to a focus on essentials, even on deep discount days like Halfway Day and Black Friday.”

Taking this into account, Game has started introducing its More4Less bundle deals to its online store, to ensure those consumers who prefer to shop online are now able to access these deals.

Consumers are also turning to buy now, pay later (BNPL) offerings from companies such as PayJustNow, as they battle to manage cash flow. PayJustNow chief executive Craig Newborn reports that the company signed up 41,443 new customers in March alone.

Newborn says, contrary to perceptions that BNPL is restricted to the lower-income market, the average PayJustNow customer is a salaried woman who earns close to R17,000 per month.

These financially secure consumers are using BNPL as a tool to improve their buying power, with nearly 60% of purchases made by repeat customers who are continually looking for ways to stretch their income. BM/DM