Ian Wason, Chief Executive of Debtbusters says credit providers are beginning to invest in debt counselling systems to improve their debt counselling processes. “This is testament to the fact that they are beginning to see the benefits of debt counselling, not only as a viable way to get money back from defaulting customers, but also as a strategy for retaining customers in the long-run,” says Wason.
26 January 2015
Ian Wason, Chief Executive of Debtbusters, says he has seen an increase in the number of employers seeking help for their employees who are over-indebted.
“Recent reports show that 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 90% in 2013,” said Wason.
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.
Wendy Monkley, General Manager at Consumer Debt Help said, “It is evident that consumers coming to us for help with their debt are spending an increasingly higher portion of their income towards their debt repayments. Sadly, when financial times get tough, South African consumers have a habit of turning to micro-lenders.”
“Those consumers that are in debt and are looking to solve their problems by taking out more debt are in for a shock,” says Monkley. “The new Amendments to the National Credit Act, will make getting credit that much harder. 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’ to the credit provider ‘establishing the truth,’ therefore making it impossible for those already in financial trouble to take on more credit.”
Wason says, “In the short-term, this could see the debt situation in South Africa getting worse, before it gets better. Astute employers are aware of this and have started preparing for the crunch. When consumers are unable to take out more credit to service current debt, employers will see many more financially distressed employees. Negative consequences which organisations are subjected to when employees are in debt comprise decreased productivity levels as a result of absenteeism and stress, broken working relationships and reduced motivation. Increased attrition is expected as desperate employees resign to access higher paying jobs or pay-outs from their provident funds.”
Monkley added, “The situation is only going to be exacerbated by the festive season financial hangover experienced by all over-indebted or soon to be over-indebted consumers”.
Employers that aren’t already doing so 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 indirectly impacts the businesses bottom line. 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.