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Debt review calculator: How the calculation behind the lowered debt review instalment is calculated.

When applying for debt review, one of the things that will be discussed is the reduced instalment and the effect thereof on your budget.

Where is the information obtained?

The reduced instalment is calculated after the creditors reflected on your credit report. Overdraft accounts do not usually reflect on a credit report, and it is therefore extremely important to review your credit report and ensure that all credit providers who are not listed there are mentioned to the debt counsellor.

How is the instalment calculated?

As per the  NCR Guidelines, a certain percentage of household income needs to be made available for the repayment of debt:

After Tax IncomePercentage of household income to be made available as a minimum for repayment of debt
R0 – R200023% – 45%
R2001 – R500032% – 47%
R5001 – R10 00035% – 49%
R10 001 – R20 00037% – 51%
R20 001 – R40 00040% – 53%
R40 001 – R60 00045% – 55%
R60 000 +45% – 58%

Debt repayment, under debt review, should usually aim to rehabilitate a consumer within 60 months (this does not include the mortgage agreement), with a fair proposal offered to all the listed credit providers.

A debt counsellor will need to prove a consumers’ state of over-indebtedness is dire in cases where the term is extended for more than the 60 months.

The lowered instalment on a mortgage loan is 80% of the contractual instalment and for a vehicle it will be 70% of the contractual instalment. Having these two credit agreements can really have an effect on the decreased premium and in most cases does not seem to make a difference for the consumer when applying for debt review.

Other credit agreements can be negotiated for a repayment period of between 18 and 60 months, depending on the outstanding balance.

What to do when looking at the reduced instalment?

Receiving a Form 16 (Application Form) can be overwhelming and the reduced instalments can be difficult to understand. Any queries pertaining to the reduced instalment needs to be discussed with the debt counsellor to ensure both that creditors obtain a fair reduced monthly repayment and the consumer can afford the lower instalment.

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