New research from PayProp has revealed that South African renters who earn under R40,000 per month are paying more than half their income on debt.
There is no doubt that South Africans are feeling the pinch caused by high interest rates.
The Reserve Bank Monetary Policy Committee (MPC) have kept the interest rate unchanged at 8.25% in the first half of this year. The prime lending rate remains at 11.75%.
PayProp’s research showed that South African renters in particular are facing a huge debt burden.
The company said that in Quarter 2 (Q2) of 2024, their data showed that SA tenants’ expenses have been increasing steadily, faster than their average income.
“Rents as a percentage of income didn’t move much year-on-year, but debt repayments did, going from 43% of income to 46.7% for the average applicant. Average disposable income is now just 23% of net income, compared to 27.2% a year earlier,” the report said.
Specifically, the researchers found that for people in income brackets above R40,000, debt spending falls sharply, and disposable income rises to match.
“Those earning R80,000 and up have 54.1% of their net income left over after rent and debt expenses,” PayProp added.
There is some good news, as PayProp noted that despite being heavily indebted, these individuals prioritise the roof over their heads.
“While the pressure of debt repayments has increased year-on-year, that hasn’t stopped people from paying their rent,” according to the report.
The data found that 18.1% of tenants were in rent arrears in Q2 of 2024 compared to 18.4% a year earlier.
What can you do to get out of this debt cycle?
Stian de Witt, the executive head of financial planning at NMG Benefits, highlighted the importance of budgeting and taking proactive steps towards better money management.
Here are his steps to better financial management:
Step 1 - Conduct a financial assessment
Take a look at your financial successes and challenges from the previous year. Did you stick to your budget? Were you able to cut down on unnecessary expenses? Understanding these can help you develop more achievable and meaningful financial goals.
Step 2 – Put clear financial priorities in place
Once you know where you are coming from, you can better define your immediate financial priorities. Of course, it is important to find a balance between short-term and long-term goals. This will help you approach your finances in a more holistic manner. Using SMART criteria (Specific, Measurable, Achievable, Relevant, and Time-bound) will help you put a framework in place to create actionable objectives.
Step 3 – Always save
With so much economic uncertainty in the market and rising inflation, interest rates, and living expenses, trying to save might seem impossible. However, even if you just put away a small amount every month, this can accumulate over time. Consider implementing the 50-30-20 rule (50% of your income towards critical needs, 30% towards things like hobbies and eating out, and 20% towards your financial goals, i.e. savings).
Step 4 – Manage your debt
It is easy to fall into the debt trap. Make a list of all your debts and what you are currently paying on them. Wherever possible, start by paying off the high-interest debts first. Once those are paid off, use the funds to pay off your remaining debt.
Step 5 – Ask for help
Working with a financial adviser is one of the most valuable things you can do to improve your financial health. They can guide and support you as you focus on tweaking your budget and achieving your financial goals.
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