May 13, 2024

Bad News for South Africans Earning More than R20k

Bad inflation news for South Africans

The past few years have been quite challenging for South Africans, with interest rates and inflation constantly rising. Concerns increase as statistics indicate debt levels for those with a salary of R20,000 or more continues to grow. 

The latest stats reveal that households are currently spending two-thirds or more of their income on debt repayment. 

Inflation and Interest Rates

The latest research shows that with the high interest rates and inflation, disposable income is quickly disappearing. According to the analysis, there is an increase in debt management, and furthermore, the enquiries for debt counselling have risen by 22%. On top of that it shows that the use of online debt management services has increased by 30% in comparison to the same period during the previous year. 

With the current inflation and interest rates, those in the middle and upper-income brackets are heading into dangerous territory as debts continue to rise. The debt index shows that South African households are using around 62% of their net income to pay off debts. And according to the stats, this is much worse for those with a higher income. 

Read: 15 Money Tips for the Working South African

The index shows that the debt-to-income ratio for those with a salary of R20,000+ is around 127%, and for those earning more than R35,000, it’s around 172%. This is among the highest it’s ever been. 

The big concern for these South Africans is that they seem to be supplementing their income with debt which will become a long term problem unless they see any meaningful salary increases. 

The Increase in Interest Rates

The pressure continues to rise as interest rates rise higher and higher. Leading to South Africans turning to their credit cards more frequently. With the current financial situation, the household markets are weakening, and on top of that, commercial banks are starting to tighten their lending standards. 

Local banks are being hurt by the increase in bad debts, and more and more South Africans are getting hurt as they struggle to pay back their loans and other debts. 

Read: No Inflation Relief for South African Taxpayers – Budget Speech 2024

With higher interest rates and inflation, banks and consumers are getting hurt. Those in bad debt situations are struggling to gain access to new loans, which turns them towards transactional credit. 

The stats show that more and more households are relying on their credit cards and overdrafts to make it to month’s end. With credit card usage growing by 10.4% in March, rising around 0.10% from February’s 9.4%. 

Bad News Keeps Rolling In

In terms of interest rates, the US Federal Reserve has voted to keep interest on hold, which means it will stay higher for longer, driving South Africans even more into debt. According to Adriaan Pask, CIO of PSG Wealth, this move makes sense as cutting rates too early could let the inflation genie out of the bottle while keeping the rates high for too long will lead to even more economic pain. 

A small light in the dark is that the US dollar weakened with this announcement, which ultimately benefits currencies like the Rand. In the first weekend of May 2024, the rand strengthened and stood at R18.54 against the dollar. 

Read: The Benefits of Living Debt Free

The South African Reserve Bank is also putting a hold on rates and will not make policy moves until inflation is back under control. Nedbank is optimistic and believes rate cuts will still be made in 2024. The bank projects a 25-basis point cut at the September and November meetings. But other analysts believe that any rate cuts this year can be ruled out and rather expecting for 2025. 

What Can Debtline Do For You?

Debtline knows how important it is to be able to manage your finances effectively and regain financial stability. This is why we’ve designed a thorough debt management solution to help you get back into debt free living.

Debtline has various helpful resources, including access to NCR-registered debt counsellors and protection as you go through Debt Review. There is access to expert advice, assistance with debt repayment negotiations and more. Start your journey towards a debt-free life by requesting a free callback via the contact form on the website.