Debt review is a formal debt relief process designed to help individuals who are struggling to meet their financial obligations due to over-indebtedness. Over-indebtedness occurs when you do not have enough discretionary income left after paying your essential living expenses and statutory deductions to cover your debt repayments.
How Does Debt Review Work?
The process starts by calculating your discretionary income, which is the amount left after all necessary expenses are accounted for. These expenses include:
- Statutory deductions such as PAYE (Pay-As-You-Earn) tax, UIF (Unemployment Insurance Fund), and employer deductions like medical aid and pension contributions.
- Essential living expenses such as rent or mortgage, groceries, utilities, insurance, school fees, and transportation costs.
Once these deductions are made, the remaining amount is your discretionary income, which is used to pay off your debt. If this discretionary income isn't enough to cover your debt payments, it means you're over-indebted and can benefit from the debt review process.
Debt Restructuring
Under debt review, your debt is restructured to make it more manageable. This is done by extending the repayment period and reducing the monthly instalments. The goal is to ensure that your repayment schedule fits within your available discretionary income.
It’s important to note that the total debt outstanding—including principal debt, interest, and any additional costs—is used in calculating a new payment plan. If a debt counsellor only restructures the principal debt and adds interest over an extended period, this becomes debt refinancing, which is not the same as debt review as per legal guidelines.
A Unique Solution for Each Consumer
No two consumers are the same, and therefore no repayment schedule should be identical. A proper debt review process takes into account the uniqueness of each individual's financial situation. While computer programs can help debt counsellors create repayment plans, they don’t always cater to the specific nuances of your personal situation.
Choosing the Right Debt Counsellor
It's crucial to choose a debt counsellor who approaches your case with care and attention. Debt counselling companies, like large corporations, may not always provide the personalized service you need. A professional debt counsellor should apply their expertise and judgment to ensure your debt review process meets your needs effectively.