Johannesburg - In the 11 years that DebtBusters has been assisting consumers, we have found that debt consolidation is often something our clients would rather consider before signing up for debt counselling.
Even though there is value in debt consolidation, it is often not viable for the typical debt crisis which the majority of these consumers find themselves in.
When it comes to debt consolidation and debt counselling, it is not a matter of which the better debt management solution is, but rather which one is most suitable and beneficial to the unique circumstances of each consumer.
So, what is the difference between debt consolidation and debt counselling, and which one should you consider if debt becomes an overwhelming factor in your life?
1. The process
Debt consolidation requires you to combine all your debts by taking out a bigger loan to cover your smaller loans. The idea is to make it easier for you to manage your debt by making one repayment towards the consolidation loan each month, instead of making sure each of your credit providers are receiving payment.
Debt counselling allows you to consolidate your debt without having to take out an additional loan. The debt counsellor will negotiate lower interest rates and fees with credit providers on your behalf, and arrange a reduced, combined monthly repayment amount. This will free up cash flow and save you money in the long run.
2. Taking out credit
Debt consolidation allows you to apply for further credit. While this may seem ideal, many people are not disciplined enough to steer clear of racking up more debt and managing it properly.
Debt counselling prevents you from taking out further credit until the process is completed. i.e. when your credit agreements are paid up, except your home loan which just needs to be up to date with payments. Being restricted from taking out further credit means a consumer can reach the ultimate goal of debt freedom.
3. Protection from creditors
A debt consolidation loan is just another loan, and if you skip payments, the credit provider can continue with their processes of contacting you to ensure you make payments.
Debt counselling gives you legal protection from creditors, as outlined in section 86 of the National Credit Act. This means that all communication will go through your designated debt counsellor, who acts on your behalf.
4. Your assets
A debt consolidation loan will not protect your assets from repossession if you fail to make payments.
The debt counselling process is designed to protect you from the repossession of your assets. You will be able to keep your vehicle and home if it is included in the debt counselling agreement.
5. Qualifying criteria
For debt consolidation, the minimum criteria is a clear credit record, no existing arrears on debt repayments and if the consumer is able to afford the monthly instalment.
The debt counselling solution is designed for those who are officially over-indebted, gravely in arrears and struggling to afford monthly repayments.
If you are over-indebted, you need to contact a trusted debt management company. At DebtBusters we will find the best debt solution for you and walk you through the process - one step at a time.
* Contact us on [email protected] / 086 999 0606, visit our website on www.debtbusters.co.za or connect with us on Facebook, Twitter and LinkedIn