South Africans owe R2.5 trillion

South Africans spend an alarming amount of their salaries on repaying debt every month, with consumers owing a total outstanding balance of R2.5 trillion.

Eighty20’s 2024 Q4 Credit Stress Report tracked the impact of economic forces on the South African consumer, with a particular focus on consumer credit behaviour.

According to the report, nearly 20 million South Africans hold around 51 million loans with a total outstanding balance of R2.5 trillion.

Concerningly, the report found that the overall instalment-to-net income ratio for all South Africans was 30% during the final quarter of 2024.

This means that almost a third of the net income of all credit-active people goes towards servicing debt.

Andrew Fulton, Director at Eighty20, explained on the Kaya Biz podcast that South Africa is facing a difficult economic environment.

Since the Covid-19 pandemic, South Africa has had an economic environment where unemployment has been quite high, reaching a record high of 35.3% in 2022.

Although it has come down slightly, it is still lingering at a shocking 32,9%.

Fulton also said that interest rates have been “shockingly high” and inflation has been “out of control”.

People’s salaries have not been kept up with this, making it increasingly difficult to afford the cost of living.

At the same time, interest rate-linked loans have also become more expensive every month, which means that people have also been battling to make payments.

Worryingly, Fulton noted that most South Africans borrow money in order to pay for food, which is followed by essential travel expenses.

Growing debt

Fulton pointed out that while credit isn’t inherently bad – since it can give people access to assets like homes and cars that they wouldn’t be able to afford otherwise – the report did highlight some concerning findings.

One of the worrying things revealed in the report is the amount of overdue balances, which increased to R200 billion during the quarter.

Although it only makes up about 8% of the total debt number, it has shot up by around R11 billion in the past year.

This was primarily driven by overdue balances in unsecured loans, which reached R1.9 billion, credit cards, which reached R1.7 billion, and home loans, which increased to R1 billion.

Most of that money comes from credit cards, retail loans, and – for wealthier South Africans – home loans.

What is also alarming, Fulton explained, is that so few South Africans are taking up debt counselling.

Around 10 million South Africans are in default on some sort of loan, but only around 200,000 people signed up for debt counselling in 2024.

Although debt counselling does cut the consumer out of the credit market, a reputable company can consolidate debt and offer a lower monthly payment on an ongoing basis.

Notably, the report also revealed that retirees are taking on increased credit.

The number of credit-active individuals in this segment grew by 4.3% year-on-year to 1.41 million.

The number of open loans increased to 4 million, with the total loan balance reaching R198 billion. Of the new loans taken out this quarter, 60% were unsecured.

Total overdue balances grew to R19 billion, 40% of which were unsecured, with retail overdue balances up nearly 40% in the quarter.

“An interesting thing we noticed is that these rising living costs and inadequate retirement savings have led retirees to maintain or even increase credit exposure, particularly through credit cards.”

Young South Africans with debt

Younger people had their own set of credit challenges as well, Fulton explained.

Notably, 80% of those under 25 hold retail credit in South Africa.

Although this can be a useful tool to help build up credit in order to qualify for other loans down the road, it is also dangerous, since young people who overspend could find themselves in a debt hole.

“The one thing we do know from all the research is that young people tend to not do well with delayed gratification, and that is the danger of retail credit,” Fulton said.

“We have noticed that young people do tend to destroy their credit scores early on.”

Despite those under the age of 35 only having about 17% of credit by value, this group makes up 40% of all defaults.

Since many young professionals cannot afford a house, they often prioritise financing a vehicle. Although having a car can be useful, it can also be ridiculously expensive.

“Credit is a tool, use it wisely. Get some retail credit early on, just don’t overextend yourself. Build up that credit record, build up that credit score, make sure you pay off your loans. Credit can be a tool to buy a house or get a car that can make your life a lot easier.”