Angelique Ruzicka speaks to Michelle Dickens managing director of registered credit bureau, TPN about how consumers can get their finances in order in 2014. Last year there were plenty of calls to consumers asking them to spend wisely during the festive season and to not overdo it. However, we all know that following this advice […]
9 December 2014
- Employees are getting into debt: Drastic increase in the amount of employers seeking help for their employees who are feeling the strain from their financial burdens
- Employees in debt leads to negative operational impact
- Employers need to encourage employees to seek help
- DebtBusters revolutionises the debt counselling process
Employers seeking help for employees feeling the strain of their financial burdens
Over the past year DebtBusters has seen a drastic increase in the amount of employers seeking help for their employees who are feeling the strain from their financial burdens. Concerns about the implications of the Amendments to the National Credit Act soon to be enforced and South Africa’s growing debt problem has gained a high profile.
Reflecting on these difficult times, this is no surprise to DebtBusters, the Award Winning Debt Management Company. DebtBusters 3rd Quarter (Q3) of 2014 clients required 108% of their net income to service their debt before they signed up for debt counselling, one of the highest rates on record and up from 67% in 2011. It is evident that clients are spending an increasingly higher portion of their income towards their debt repayments, before they sign up for debt counselling and that tougher times await.
Employees are getting deeper into debt
South African consumers have a habit of turning to micro-lenders when financial times get tough. Consumers earning less than R10, 000 per month have been hit the hardest by micro lenders. DebtBusters Q3 2014 clients have a negative disposable income before they sign up and have an overall debt to gross income ratio of 115% before they signed up for Debt counselling. In addition, for the first time ever, DebtBusters clients had more unsecured debt (51%) than secured debt when they signed up for debt counselling.
Over and above that the combination of rising living costs, 2014 repo rate increases and the overall state of the economy has acted like a pressure cooker for those who are suffering with debt and financial troubles, as their debt situation has dramatically worsened.
Nevertheless, the vast rise in unsecured debt from R40bn in 2008 to R172bn in 2014 has come to an end and the amount of unsecured debt made available to consumers is going to fall substantially, putting severe strain on consumers who have been using debt for consumption, or even worse, using new debt to repay existing debt.
The new Amendments to the National Credit Act (NCA), due to be gazetted in December 2014, will have several effects on the lending industry in South Africa;
All consumers will have to undergo a defined affordability test by the credit provider before they are lent money. This will include full credit checks to assess their current debt levels, full income and expense declarations, and proof of income. The onus will have shifted from the consumer ‘telling the truth’ and the credit provider ‘establishing the truth,’ therefore making it impossible for those already in financial trouble to take on more credit.
Furthermore, micro-lenders will have to register in order to become providers of credit, therefore eradicating the trend of unscrupulous lending in South Africa.
Having African Bank placed under curatorship and the new Amendments to the NCA it is going to be a lot harder for the average consumer to get more debt. In the short-term, the debt situation in South Africa is only going to get worse, before it gets better in the long run. South African consumers are going to have to curve their spending and avoid credit in order for the economy to get there.
Employees in debt leads to negative operational impact
The inhibition for consumers to take out more credit to service current debt, will result in many financially distressed employees and will have a direct operational impact on businesses. Negative consequences which organisations are subjected to when employees are in debt comprise decreased productivity levels, broken working relationships and reduced motivation.
The situation is only going to be exacerbated by two major pressure points; The festive season financial hangover experienced by all over-indebted or soon to be over-indebted consumers and the current prescribed debt collections frenzy, as it will soon be illegal for prescribed debts to be collected or sold according to the National Credit Amendments Act. A massive collections industry which has grown out of loan books comprising prescribed debts will target employees with prescribed debt and place pressure on those unaware of prescription.
Employers need to encourage employees to seek help
Employers should advise any employees struggling with debt problems to seek help immediately and guide them to a company that provides free debt advice.
Employers need to be aware of employees with debt as it contributes to the businesses bottom line and in the broader scheme of things, the economy.
Companies should also endeavour to create an organisational climate which encourages employees to seek help with their debt. Often employees are embarrassed to admit they are in debt and struggling with money, so it is important to ensure that asking for help is not seen as a sign of weakness and rather as a second chance to build a brighter financial future.
DebtBusters revolutionises the debt counselling process
DebtBusters is one of the few players in the industry using The Debt Counsellors Rule Set (DCRS), which is recognised by Credit Providers and responsible for improving operational processes and obtaining the best results for clients.
Once employees have entered into the debt counselling process, they will immediately begin to make progress on paying off their debts. DCRS makes debt more affordable for clients to pay back as it allows DebtBusters to reduce the client’s debt repayments by up to a 3rd of what they were required to pay before under debt counselling, through the process of reducing interest rates and extending repayment terms.
DebtBusters renegotiated interest rates and repayment terms enabled the Q3 2014 clients to pay a remarkable amount of 37% of their net income towards debt counselling, down from 108% before entering into the process. DebtBusters currently restructures the over 95% of their client’s credit agreements so that the unsecured debt is repaid within 60 months. Ian Wason, DebtBusters CEO comments “our average clients ‘debt to income ratio’ has been stable around 120% over the last few years, so it is not the size of the debt burden, but the short term expensive nature of their debt. The huge advantage of DCRS is that this means we can get these clients restructured, out of debt and back into the economy relatively easily” .
Although debt counselling extends debt repayment terms to 60 months, higher income earning clients without a house or car, get debt free within 2-3 years.
Debt Counselling rehabilitates employees by teaching them how to work with their money and giving them the confidence they need to handle their own personal financial affairs. DebtBusters client services department is a phone call away and gives employees the support they need to no longer worry about their finances and negatively impact their place of work.
DebtBusters is the only Debt Counsellor in South Africa which not only teaches clients how to work with their money but also helps them track their debt counselling process, through their online customer portal Smartcents (www.smartcents.co.za). Smartcents by DebtBusters has revolutionised the way DebtBusters does debt counselling and has shifted their focus to financial rehabilitation. Consumer education and rehabilitation is a vital key to assuring cash strapped employees take the right steps to improve their financial situation.
We need to educate employees against the issue of taking out ‘bad’ debt or using debt as a band aid to remedy their debt problem in the short term. Employees need to have good understanding of how to budget, how to manage their money and the variety of different financial products available to them for their individual needs.
- DebtBusters clients required 108% of their net income to service their debt before they signed up for debt counselling, one of the highest rates on record and up from 67% in 2011.
- DebtBusters Q3 2014 clients have a negative disposable income before they sign up and have an overall debt to gross income ratio of 115% before they signed up for Debt counselling.
- DebtBusters currently restructures the over 95% of their client’s credit agreements so that the unsecured debt is repaid within 60 months.