Debt Review vs Debt Consolidation

Unfortunately with the current economic climate, many South Africans struggle to manage and repay their debt. Debt review and debt consolidation are options that may be considered to help ease the burden. Though it may sound like the same thing, there are differences between the two options.

Debt Review may also be called debt counselling and involves a professional debt counsellor who will asses your debt and income. The counsellor will then work out a structured repayment plan according to your unique needs. The counsellor will negotiate new repayment terms with credit providers, which will usually involve a smaller monthly payment but over a longer period, making your monthly obligations more manageable. It is important to note that your debt does not fall away.

In order to qualify for debt review, you must be employed and earning a consistent income, your debt must have originated in South Africa, If you are married in community of property, your spouse will have to agree to go under debt review too, and you must not be already sequestrated.

The advantage is that you will have a professional person to guide you in managing your debt and who will negotiate on your behalf, which may help you to feel less overwhelmed. While under debt review, the risk of creditors taking legal action against you, is also minimised. Your assets will also be protected from being repossessed by your creditors.

Some of the disadvantages of being under debt review are that you will not be able to incur any further credit – you will not be granted any loans and you will not be able to use any credit cards or store account cards. In addition to monthly repayments, you will also be liable for the debt counsellor’s fees. Your credit profile will also be flagged to note that you are under debt review.

Debt consolidation may be an option if you struggle to stay on top of all your different debt repayments. This involves one new consolidation loan which will be used to settle all other debts, with only one repayment to be made to the credit provider of the consolidation loan. In other words, you will be doing away with multiple loans and agreements and will replace that with one agreement and one repayment.

Some advantages of consolidation are that it will be easier to manage your repayments as you will now only make one repayment to one credit provider instead of multiple payments to multiple credit providers. It is also possible that you may be granted a consolidation loan at a lower interest rate – if this is used to pay of loans with higher interest rates, you may save some money. You will also not pay any fees to debt counsellors.

Disadvantages are that there may be high initiation fees involved with the consolidation loan. Also, your debts will merely be combined and not necessarily reduced. The repayments on a consolidation loan may also be stretched over a long period, which means that the interest which accrues, may lead to a significant
expense.

As shown above, debt review and debt consolidation may be helpful tools when struggling to keep up with payments, but it is important to fully understand the process and consequences of the options available before choosing the best solution.