WEALTH
The Financial Distress Landscape
The National Credit Act of 2007 aimed to regulate credit and protect consumers , yet many South Africans remain in financial distress . The National Credit Regulator ( NCR ) indicates that approximately 8 million people are struggling financially , with many not even under debt review , which serves as a safety net for debt management . Despite legislative efforts , a large segment of the population is ensnared by debt .
Debt-to-Income Ratio : A Key Indicator
One critical metric used to assess financial health is the debt-to-income ( DTI ) ratio . This ratio is calculated by dividing total monthly debt payments by gross monthly income . For instance , if an individual has a monthly debt payment of R20,000 and a gross income of R50,000 , their DTI is 40 %.
A DTI ratio below 36 % is considered good , 37-41 % is manageable , 42-45 % is high , and above 46 % is very high . Shockingly , the average DTI for individuals earning R20,000-to-R35,000 net income is 127 %, and for those earning above R35,000 net , it rises to 172 %. These figures underscore the severity of over-indebtedness in South Africa .
Income and Debt : The Harsh Reality
Consider an individual with a gross salary of R30,000 per month . With a DTI of 107 %, they allocate R15,600 to debt payments monthly . For higher earners with a gross income of R50,000 , R26,700 goes towards debt payments , indicating a similar DTI . This trend reveals that many South Africans are financing their lifestyles through debt , contributing to a cycle of financial instability .
118 REI MAGAZINE AUGUST