As a rule of thumb, financial advisors say you should try keep your debt repayments to between 30 and 40% of your income. So, on the lower end of that, if you earn R20 000 a month, your repayments should ideally not exceed R6000. If you cannot keep up with your debt commitments, you may be at risk of a potential debt spiral – where you borrow to pay off what you have already borrowed, and get stuck in a loop of growing debt.
Although mortgages (or “bonds”) make up the bulk of the national debt book by rand value, credit facilities (credit cards, overdrafts, store cards etc) make up 65% of our credit accounts, and unsecured credit a further 14.6% when viewed by type. This is important because property is an asset, whereas credit facilities are a liability. If you default on your home loan payments, it can be sold to cover the costs. A property also generally increases in value over time. The only increasing a credit card or store card does is in the interest on the original amount – that’s how your debt grows bigger over time.
Despite tougher affordability requirements and large-scale efforts to educate consumers, credit use in the country is outpacing employment growth, and the over-indebted gap is widening.
Further data suggests that almost a third of all 25 million credit-active South Africans spend more than a third of their income on monthly debt repayments – and that’s excluding mortgage or bond obligations.
Drawing and extrapolating from eye-opening research by Eighty20 (presented to the Parliamentary hearings on amendments to the National Credit Act in early 2018), about 32% of South Africans have monthly debt obligations (excluding mortgages) that exceed 30% of their income.
About 34% of those earning less than R10 000/month have debt obligations exceeding a third of their income. For those earning over R10 000, this drops to around 29%.
The scariest fact is that about 5,5% of people across all income categories have debt repayments that actually exceed their income. To be clear, this group must borrow just to meet their debt obligations – leaving nothing for actual living expenses. Not surprisingly, this group is found mostly in the lowest income grouping – those earning R3 500 or less, where approximately 12% of credit active consumers have repayment costs more than their full incomes.