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‘Debt counselling needn’t be a scary process’

Very few South Africans access their credit reports and understand their debt levels – Benay Sager from DebtBusters.

NOMPU SIZIBA: South Africans are increasingly turning to debt counsellors for help, according to DebtBusters’ quarterly debt report. The worrying thing about this story, though, is that DebtBusters say that consumers are seeking help a bit later than they should – when they are already knee-deep in debt.

Well, to share some of the findings from the report I’m joined on the line by Benay Sager, the chief operations officer at DebtBusters. Thanks very much, Benay, for joining us on the show. Are consumers who are in serious debt coming to debt advisors late in the day? What are your observations in that regard?

BENAY SAGER: I think people who are financially stressed are turning to solutions, and for some of them it’s actually happening sooner than it did before. What we are seeing is many people who are probably really struggling with the financial times we are living through are coming to us with fewer credit agreements than they did before.

A few years ago, many of the consumers that would make enquiries with us would have nine or ten credit agreements that were open at the time that they would make an enquiry. Now we are seeing that number down to six or seven.

And what we are also seeing is the amount of debt that they are coming with is more than before. What that means is that people are getting into financial difficulty sooner than they did before, in terms of their credit active life, and they are taking up larger-sized loans. That’s what it appears to be to us. That’s what we have been seeing over the last few quarters.

NOMPU SIZIBA: Your findings seem to suggest that the higher someone’s income, the greater debt that they seem to have relative to their income. Is that people believing that, because they earn a higher income, they’ll be able to better manage their debt, or what? Or does it just speak to increased consumerism as one goes up the food chain, so to speak?

BENAY SAGER: Not necessarily. There may be an element of that, and I think what you see is with higher incomes generally there are also aspects involved, like a home loan or a vehicle that’s financed. Generally that pushes up the debt level significantly.

And the composition of the debt is quite different when you look at higher income levels. Generally what we would see is, let’s say, three-quarters of the debt would be tied to an asset, whether that’s a vehicle or a bond, whereas with the lower incomes, even though the overall debt levels look more manageable, it’s far worse for them because they need to spend a higher portion of their income repaying those unsecured debts.

Generally what happens is those debts are taken out at a higher interest rate compared to, let’s say, a vehicle finance or a bond. Even though the overall debt levels look more favourable for the lower-income consumers, the burden of debt, if I can call it that, on a monthly basis as what kind of interest rates they are paying, is significantly more compared to the [those on a] higher income. That’s one factor.

Also I think what happens is with higher incomes often what we see is these consumers are almost in like a “sandwich generation”. They are supporting multiple generations – in most cases three generations – and they are supporting, within a generation, multiple people. So they’ll be supporting their parents and their kids, but also possibly uncles or bothers or sisters or cousins. That’s also what you see, particularly with government employees. We find them to be more stretched, generally speaking, in terms of debt levels. That’s the other driver as to why our higher-income consumers appear to have more debt.

NOMPU SIZIBA: The good thing, of course, is that people are eventually coming to professionals like yourself for assistance. So what regime of debt management medicine do you put them on – what’s the process?

BENAY SAGER: It’s a good question – which medicine? I think it depends. At DebtBusters we speak to thousands of people per month who make enquiries, and often, for many of them, I would say a majority of them, what they need is some sound financial advice as to how to manage their financial situation.

Not everybody is a candidate for debt counselling, which is predominantly what that process is known for. For many people, when they speak to our team, it’s the first time they would have got exposure to their credit report. It’s an eye-opening experience when we say, “Okay, how much debt do you think you have?” They will say, “I have, let’s say, R100 000”. And then you say, “Actually, it looks like you have R120 000”. They say, “Oh, wow! Just walk me through that”.

What happens is it’s the first time they’ve actually been given transparent information across the board for all of the credit activity. I think our South Africans are quite bad in actually willing to go the extra mile – even though it’s probably free in most cases to get the credit report – to really understand the level of detail. I think we are quite bad at it. I don’t know why, but only a fraction of people would have seen the actual credit report and understood their debt levels. What the majority of the people need is some basic advice.

Then you come to some of the individuals who will make an enquiry who are really finically stressed, and in that case what we look at is trying to understand what the reason is for them to be financially stressed – whether there was, let’s say, a sudden loss of income, for example, or a big event in the family like a funeral or a medical bill or something like that. For those individuals, the remedies that you might suggest may be different from those for someone who appears to have, let’s say, borrowed a number of times over a short period of time, and now find themselves in a situation where what they need to pay back is significantly more than their net income. And I think the stat that you are seeing is a reflection of those individuals, generally speaking, those who have chosen debt counselling as a solution.

The beautiful thing about debt counselling is of course it’s a regulated process; it’s part of the National Credit Act. I always make this point: it’s not a scary process. It might be a mentoring process. One needs to be diligent with it. But it’s not a scary process. We work hand-in-hand with credit providers, with the credit bureaux, with the regulator, to help the consumer essentially get a second financial life. In the next few years, if they sign up, they will have limited access to credit. But, beyond that, for most consumers once they get over that hurdle, it’s far more favourable at the end.

So, it’s a process. I make the point that the best way to find out whether you are candidates for the process is to give us a call on 086 999 0606, and then see if that is the solution for you.

NOMPU SIZIBA: Many thanks, Benay, for joining us this evening.

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One of the BIG problems is they have all these Policies have payments that go up at 10% and their income goes up @ 3 – 5%. Most of these policies should never go up

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