The Difference Between Debt Counselling & Debt Consolidation

In this article we’re going to consider the dissimilarities of debt counselling and debt consolidation, as well as the advantages of each.

Let’s get started.

Debt Counselling

Debt counselling, also referred to as debt review, is a legal debt solution that aims to help over-indebted individuals who find themselves drowning in debt.

If an individual signs up for debt counselling, they will be assigned a debt counsellor, who will be responsible for reaching out to creditors to negotiate lower interest rates and smaller repayment amounts.

Through the restructuring of debt in accordance with an approved plan, South Africans who find themselves on the deeper side of debt can pull themselves out of a debt trap.

The benefit of debt counselling

Those who undergo debt counselling can rest assured knowing that a debt expert is assisting them with their debt, and that their creditors will no longer be permitted to take action against them or contact them whilst under debt review.

It must be noted that individuals who undergo debt counselling will not be allowed to access any new credit until their debt counselling process has come to a close and their debt is settled.

When is debt counselling the right option?

Debt counselling could be the right option when individuals are already at odds with their creditors; likely being contacted numerous times and been warned about the legal implications of missed payments.

Debt Consolidation

People who have a range of debt repayments that they need to pay each month, each with varying interest rates and repayment terms, may find it difficult to stay on top of everything.

Through debt consolidation, individuals struggling with debt can take out a debt consolidation loan and combine their debt into a single monthly payment with one interest rate and single repayment term.

The benefit of debt consolidation

Through debt consolidation, individuals will end up with an overall lower interest rate, with a simpler debt structure going forward. This will make repayments far simpler and more cohesive.

However, with lowered interest rates comes an overall longer repayment term, with no access to legal assistance if creditors decide to act. With debt consolidation, individuals will still have access to new credit, unlike debt counselling.

When is debt consolidation the right option?  

Debt consolidation may be the right option for individuals who have been scrambling to meet their debt obligations, and simply need a light push in the right direction. Through the restructuring of debt, individuals who undergo debt consolidation are likely to make ends meet more comfortably.