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 into debunking 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 R305bn 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. Statistics South Africa reports 1748 entities liquidated from January 2022 to November 2022. Financial and retail sectors hit hardest (33% of total). More closures mean job losses and consumers struggling to repay, fuelling 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 adds, “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. Companies like Amplifin are crafting solutions that work for consumers while enhancing the management of debt plans. Maier explains that the company has seen successful stories of debt recovery companies easing consumer payments with tailored solutions.

Maier says, “Efficient payment facilitation and positive consumer experiences are crucial in managing consumer arrears 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.

A change in perception to be embraced

As we navigate the intricacies of debt recovery, it becomes evident that a significant shift in perception is needed for both debt collector agents and consumers facing arrears debt. The traditional negative and unpleasant image of debt recovery must give way to a new narrative that emphasises a willingness to resolve arrears debt issues and work towards financial well-being.

By embracing this change, we can profoundly impact the payment culture among those who are indebted. This collaborative approach between businesses and consumers preserves their relationship, fosters financial rehabilitation, and eventually returns consumers to full economic activity.

A payment culture that fosters responsibility, reliability, and trust in the financial landscape, benefiting individuals, businesses, and the nation as a whole.

PERSONAL FINANCE