Debt Wise Solutions – System Calculation (Cascade)
Debt Wise Solutions, debt counselling application makes use of the following calculations in order to compute the consumer/applicants, projected cascade.
- Pro Rata on Payment
- Proposed Escalation
- The Cascading Effect
Pro Rata on payment:
- We first add up all of the COB Payments and set this equal to 100%
- We then determine what percentage/fraction of the total 100% each credit provider was originally supposed to be getting according to their contract with the consumer.
- The next step is to take the consumer’s “Nett Available” for distribution, which is their gross collectable amount, minus DC Care Fees, minus PDA Fees (if new fee structure) and split it amongst the credit providers on the basis of their original “Pro Rata” percentage/fraction. As calculated in point 2.
- The payment calculated is referred to as the proposed payment and we then store this and allocate it to the consumer’s creditor on the system.
- The debt counsellor may adjust this payment rounding it up or down, and then lock it
- By locking at payment, they will set a minimum payment percentage to be used on the specific credit agreement.
- Locked payments are considered an amendment to the pro rate percentage/fraction and will be used as such in the calculation.
- Should the client indeed pay in more in a month, the Credit Provider with a locked payment, will get an equal percentage or pro rata portion of the additional monthly payment made by the consumer. Should the consumer pay in less in a month, then the credit provider will be paid proportionately less.
- When calculating the consumer’s monthly “Nett Available” we allow the debt counsellor to set a proposed escalation in the consumers budget.
- Escalation, is a percentage that the consumer’s income will increase at a pre-set interval.
- An example could be presented as follows; the consumer’s budget will increase by 10%(percentage) every 12 months(interval).
- This is a projection of what can or could happen to a creditors proposed payment, after each of the consumers creditors are paid off.
- This is an illustrative calculation as it is based on payments and distributions taking place on the same day every month for the duration of the debt review.
- We start each creditor off with their Opening Balance as per Certificate of Balance (COB). If a COB was not received, the Debt Counsellor ticks a tick box to say use balance as per applicant, which is provided to them. This is then considered the opening balance.
- We then project forward adding interest and deducting payments until the first credit provider is paid off.
- This is determined by projecting forward to the first month when the consumers balance moves into a credit(positive balance)
- We then stop the calculation and move one step back to determine the final payment and how much money was left over in this month, if the final instalment was not equal to the proposed monthly payment.
- We then calculate a new pro rata percentage/fraction for each of the of the credit providers.
- We then take the balance left over for the month in question (point 6) and redistribute it amongst the remaining credit providers.
- We then run an additional check as per point 5 to determine if any of the other credit providers are paid off due to the additional payment for the month. Should this be the case we loop through points 5 to 9 until no more credit providers are paid off.
- We then calculate a new Pro Rata Proposed Payment for the remaining credit providers moving forward.
- We continue to distribute funds on the basis of this Pro rata percentage/fraction until then next credit provider is paid off and then loop through point 5 to 9 again.
- While running through this continual calculation loop, we monitor the number of months that have passed, checking whether or not to implement the “Proposed Escalation”. Should the calculation hit a month with escalation, the consumer’s “net available” will increase and therefore the Credit Provider will automatically get more for that month, but their “Pro Rata” percentage/fraction will still be the same.
- After implementing “escalation” some credit providers might be paid off, so we run through points 5 to 11 again to ensure that all available funds have been taken into consideration.
Important Points and Disclaimers:
- The Cascading Calculation in totality is a projection and does not fully reflect what will take place when in the real world.
- In reality there are late payments.
- The consumer may not get their proposed salary increase, which will result in escalation not to happen as projected.
- Formulae and/rules within the industry may be amended, which will affect the roll out of the cascade.