As inflation and the cost of living continue to rise, a growing number of households in South Africa are struggling to meet their financial obligations. In many instances, despite various avenues available to the consumer to seek assistance, households avoid it, leaving debt to spiral out of control.
Marius Jonker, CEO of the Association of Debt Recovery Agents, and Steven Maier, chief brand officer for Amplifin, share their insights and attempt to debunk myths about arrear consumer debt and its causes, stakeholders, impacts and solutions.
Source of household debt exposure
According to Jonker, consumer debt cannot be solely attributed to private-sector financial products like loans and credit cards. Less than 45% of a consumer’s monthly credit obligations come from credit agreements governed by the National Credit Act (NCA).
The debt owed to the public sector, including central government, municipalities, and government departments, exceeds that of debt due to the financial and retail sectors. South African households owe a mind-boggling R305-billion in arrears to local municipalities as of December 2022 (reported by the National Treasury), significantly impacting service delivery and contributing to major challenges in maintenance and infrastructure.
Unmanaged debt causes national problems affecting everyone. Delayed payments affect inflation, increasing costs for all. Both public and private sectors suffer losses, leading to higher prices and credit costs, with taxpayers feeling the burden as services suffer.
Unpaid consumer debt causes hardship, too, in the financial and retail sectors. Debt recovery is crucial for businesses’ survival, as it affects assets and liabilities and can lead to insolvency and liquidation. Stats SA reports 1 748 entities liquidated between January 2022 to Nove,ber 2022. Financial and retail sectors hit hardest (33% of total). More closures mean job losses and consumers struggling to repay, fueling the debt spiral.
The challenges
Managing consumer emotions poses a challenge. Consumers often react impulsively when contacted by debt recovery practitioners, either by fighting or avoiding the offer of assistance. Debt recovery professionals are trained to manage and handle emotions to enable successful mediation and rehabilitation of the consumer. However, it is tough during a depressed economy.
Jonker says: “A lack of financial literacy among consumers also compounds the debt recovery market’s challenges. Many individuals don’t fully acknowledge the ramifications of not paying debts. Unpaid debt can severely limit future access to credit, affecting the ability to purchase essentials such as cars or homes. Negative credit records can even hinder employment prospects, leading to a ripple effect on individuals, businesses, and the broader economy.”
Addressing the challenges
Success hinges on addressing challenges and providing consumers with better payment options.
Maier says: “Efficient payment facilitation and positive consumer experiences are crucial in managing consumer arrear accounts. It’s all very well rescheduling consumer debt, but you need to enhance the actual management of the plan to its logical conclusion. This requires multiple payment and consumer engagement options that meet the requirements of both the consumer and the debt recovery practitioner.”
To achieve this, debt recovery companies need to partner with experts who understand the industry and have the right technology.
Jonker agrees, emphasising the need to embrace digitisation and multiple payment channels to meet diverse consumer demands. There’s no one-size-fits-all solution, but prioritising consumer experience, security, and ease of payment is vital.