Difference Between Debt Counselling And Debt Consolidation Loans

There are many misconceptions about debt counselling and debt consolidation loans. Many consumers believe that this is the same process. In fact, the two are very different. And one has the potential to leave you in a worse position than before…

When it comes to our finances there are many options to consider when financial relief is needed. Therefore it is important to do research and understand the differences between the variety of options out there.

Consolidation loans typically get you into more debt, whilst debt counselling focuses on getting you out of debt in an affordable manner. 

Keep reading to find out why a consolidation loan may not be the best option… The reasons may shock you.

Knowledge is  key…

Understanding the difference between debt counselling and debt consolidation loans will help you make the best financial decision for yourself and your family.

Here we will break down the two most researched debt relief options to make sure you make the right choice. 

Debt Counselling: a highly regulated and sustainable option for debt relief

The debt counselling (also known as debt review) process was introduced in 2007 by the National Credit Regulator. 

From 2007 to 2012 the NCR decided to move quickly in order to protect the millions of consumers who were being left to fend for themselves. Many lost everything due to being unable to afford their debt every month. Their solution was to put in place a debt relief process called debt review/debt counselling.

The process was put in place to help struggling consumers from becoming blacklisted and to help those who are unable to meet their current debt repayments. Debt review legally protects consumers from losing important assets such as their home or car, which would essentially leave them in a worse position than before.

Debt Counselling has been a highly successful and affordable solution for thousands of South Africans suffering from over-indebtedness. The process ensures that all living expenses are covered and that the consumer can live without making any more debt.

There are many benefits to debt counselling/debt review:

• Your monthly budget will help you meet your basic needs every month so that you can afford your debt repayments.

• Your debt counsellor will suggest ways of saving money and cutting costs.

• All debt repayments will be consolidated into one reduced affordable monthly repayment. This means that you will only have one debit order for your debt repayments each month.

• You will no longer be harassed by your credit providers demanding payment – These calls will now go to your debt counsellor.

• All your assets such as your home, vehicle and furniture will be protected from repossession.

• Your debt counsellor can investigate reckless lending on your behalf to see whether the debt was granted to you legally. You can also read this article for more information on reckless lending.

• Debt counselling provides you with peace of mind by knowing  your debt repayments are being covered each and every month.

There are many other benefits to the Debt counselling process. You can view this article for more benefits of debt counselling.

Debt Consolidation loans: When a another loan lands you in deep water 

Debt consolidation is the process of paying off multiple debt accounts with a new loan.

You will be in debt for longer as they extend the term and still charge interest on the consolidation loan.

The process of consolidating debt with a personal loan involves using the funds from the loan to pay off each individual loan. Lenders pay off loans on behalf of the borrower.

A consolidation loan only covers unsecured debt such as personal loans, credit cards and store accounts. This is seen as a high-risk debt consolidation loan.

If you are over-indebted with multiple debt accounts, a consolidation loan from a consolidation company may seem like an ideal solution.

But, debt consolidation loans have high interest rates and admin fees which might land you in the more financial struggle than you think. Getting another loan will not bring you financial relief. Instead, it gives you one instalment, at a higher interest rate and extended term.

If your credit score isn’t looking great and is below 690 FICO, be prepared to cough up an extra 36% in interest every year for your consolidation loan. You can get your free credit report here to see where you stand.

Although you will be paying a lower monthly instalment on your debt, the high-interest rate involved with a consolidation loan means you will pay more over time!

Debt Rescue has helped thousands of South Africans through the debt counselling process. Before you decide to take a consolidation loan, chat with one of our consultants to see if this is a viable option for you first.

Consumers who take out debt consolidation loans often return to Debt Rescue as they realise the loan has put them in a worse financial position.

Leave your contact information in the form below and one of our friendly consultants will contact you as soon as possible to discuss the best solution for you… 

Debt Rescue is the number one debt counsellor in South Africa and we have assisted thousands of consumers with their debt, providing them with immediate financial relief. Simply complete the below contact form below and one of our expert consultants will contact you with the best solution based on your current situation.