Rising living costs push South Africans to rely more on personal loans

Although consumer confidence has improved and the rollout of the ‘two-pot’ retirement system has provided some financial relief, more South Africans than ever are using personal loans to make up the shortfall between income and the rising cost of living.

The newly released DebtBusters Q1 2025 Debt Index shows that a staggering 91% of consumers who sought debt counselling in the first quarter of the year reported having a personal loan.

DebtBusters executive head, Benay Sager, said it is clear that while consumers may feel a little more positive, personal loans, especially one-month loans, remain a lifeline for many, because income has not kept pace with rising expenses.

The past nine years have seen staggering increases in essential costs: electricity tariffs have skyrocketed by 135%, petrol prices have surged by 88%, and cumulative inflation hovers at 52%. As a result, consumers who pursued debt counselling in Q1 2025 needed, on average, a daunting 69% of their take-home pay to service their debts—the highest percentage observed since 2017.

Strikingly, those earning R5,000 or less monthly utilise an overwhelming 76% of their income to pay down debt, while individuals with earnings above R35,000 allocate an astonishing 77% for the same purpose. These figures represent the highest debt-servicing ratios recorded since DebtBusters began analysing consumer behaviour in 2016.

Comparing today’s consumers to those in 2016 reveals a concerning decline in purchasing power, which is now 53% lower. Although inflationary pressures appear to have lessened, the average nominal incomes for incoming cohorts remain 1% below 2016 levels. Conversely, there is a silver lining for top earners, as those making R35,000 or more have experienced an 11% increase in nominal income since 2016 for the first time in several years.

Unfortunately, the burden of debt remains pervasive across most income brackets. Consumers are diverting 25% of their disposable income—after servicing their debts—toward essential expenses such as water, electricity, rates, and transport. In the wake of food inflation, many families have been forced to forgo crucial insurance and assurance cover. Lower-income groups particularly feel the pinch, facing 2% to 4% higher inflation over recent years, predominantly due to the rising cost of staple food items.

Top earners, too, grapple with unsustainable levels of unsecured debt. On average, this demographic’s unsecured debt has soared by 34% over the last nine years, with a staggering 90% increase observed among those earning R35,000 or more—the highest level recorded to date.

Sager notes that interest in debt counselling has been “a bit muted” compared to previous years, attributing this to a mix of uncertainty about the macroeconomic landscape, access to retirement funds, and negative perceptions surrounding debt counselling. Nevertheless, he stresses that debt counselling remains the best option for consumers seeking to restructure their debts effectively.

“While the average interest rate for unsecured debt has decreased from an eight-year high to 25.3%, under debt counselling, it can be reduced to approximately 2.5% per annum,” Sager explains. This reduction not only allows consumers to repay cripplingly expensive debt more swiftly but also mitigates the burden of vehicle debt and balloon payments by negotiating interest rates on financed vehicles down from 14.9% a year to a more manageable level.

The trend towards proactive debt management is beginning to change the narrative, as the number of consumers completing debt counselling has increased elevenfold since 2016. In Q1 2025, those who received clearance certificates managed to repay over R700 million to their creditors, signalling a positive shift in financial responsibility.

Amidst a growing concern, interest in online debt management tools has surged by 6% compared to the same period last year, with subscriptions to DebtBusters’ proprietary online tools, Debt Radar and Debt Sustainability Indicator, surpassing a remarkable 1 million.

Weekend Argus