“Our workload has increased due to Covid firstly, then the cost of living, then the interest rate increases,” says Christine Liggens from Debtfix.
The charity has partly relied on $490,000 a year from the Ministry for Social Development (MSD) to help meet the cost of budget and finance advice for Kiwis who fall into difficulty with debt. Liggins said MSD has confirmed that contract ends in June.
Liggins said Debtfix appreciated the support received from MSD over the last four years, but with an increase in need for all of its services, it would appreciate it if it continued.
“New Zealand relies heavily on the social sector and unfortunately everyone is chasing the same pot of funding. It is a great disappointment that the Government don’t see the need to fund us,” Liggins said.
“I guess at least we were aware last year that Labour hadn’t included us in the Budget. We were just hopeful that National would see fit to continue to support us and our work.”
Social Development and Employment Minister Louise Upston said the coalition Government supports New Zealanders improving their financial literacy.
“We appreciate the work that debt solution services like Debtfix did to help people manage debt during the Covid pandemic.
“Anyone with problem debt can still access help for free through MSD’s Building Financial Capability services.”
Debtfix has also been working with four KiwiSaver providers to manage hardship requests, which provides the charity some income to help with other people in need.
MSD’s Mark Henderson, general manager safe strong families and communities, said the support for Debtfix had been time-limited funding, which responded to the increased need for support caused by the pandemic.
He directed people to a government directory of budgeting and financial advice services, the family services directory and to good loans provider Good Shepherd New Zealand among others.
MSD is currently seeking bids to provide budget advice and debt solutions on contracts that could last four to five years. It has $19.5 million to spend on services for building financial capability each year.
Credit contract changes coming
All this comes as the coalition Government removes regulations for credit contracts that made it harder to incur a debt.
Those changes are meant to steer people back to more reputable providers, who will have an easier time lending.
“It is too early to know how changes to the [Credit Contracts and Consumer Finance Act] could impact demand,” Henderson added, in respect of questions about the changes announced this week.
Can’t pay, or won’t pay?
Debt collectors are also watching the changes.
The owner of one debt collection company Fair Go spoke with said they very quickly try to work out whether someone who hasn’t paid a debt either can’t pay or won’t pay.
“If the debt’s more than $1000, unless there’s an exceptional reason, I will bankrupt the individual,” says Gravity Credit Management‘s Damien Grant.
Grant said his collection team tries to work out the circumstances – is it a change of life like a marriage breakup, job loss or illness that has caused someone to fall behind on repayments?
“Part of the job as a debt collector is sometimes just to wait and to wait until that person is back on their feet and then you can engage with them,” said Grant.
Grant estimates it costs $5000 to $10,000 to issue and pursue bankruptcy proceedings, so he views it as a last resort to send a message that he will chase a debt, especially if that debt is for less than the cost of collecting.
“If this is a case of someone who can’t pay, then no, you’re just being mean. But if you have someone who can pay, but is refusing to pay then yes, we will, we absolutely.”
Debtfix tries to avoid bankruptcy for those who seek their help.
“What a waste of time, money and effort,” Liggins said.
“Let’s just talk, and try and get a debt repayment plan in place or get the debt resolved.”
That can mean a small, but regular payment plan – as little as $5 per week for a smaller debt may prevent harsher penalties.
Disputing a debt
It can also mean carefully checking the amount is right or the debt is actually due.
“Creditors usually have a disputes resolution (service) that you can bring into the loop at that stage and say you’re disputing this debt, you want to make a complaint against them because they’re not helping you,” Liggins added.
Debt collectors will typically allow the 20 working days for that to run its course and it is usually free to the debtor – and costs the creditor.
Another option is to take the matter to the Disputes Tribunal where, for as little as $45, a person can get a ruling about whether they do owe a debt. That can take months to resolve, but should pause any collection action until it is sorted.
Debt collectors and advice services agree – the best thing to do is engage – start talking about what is owed, how to pay it off and what to do if there is a dispute.