What to choose – debt review or debt consolidation loan?
Many people are uninformed about what the pros and cons are when it comes to debt review or consolidation loan. Many people also do not know that there are two options when they find themselves over-indebted and struggling with their financial situation monthly. Let us take a look at the difference.
Debt Review & Counselling.
Debt review is a process whereby a debt counsellor assesses your outstanding debt and puts in place a restructured debt repayment plan. The debt counsellor will renegotiate interest rates and repayment terms with your credit providers to reduce them. The benefit of debt review is that it can protect your assets from being repossessed by the credit provider.
If you are seriously deep in debt and have been missing payments for some time already, your credit score might already be too low to qualify you for a debt consolidation loan. In this case, debt counselling may be the best option. To qualify for debt counselling, your debt first needs to be assessed, and you need to be deemed over-indebted. Once it’s obvious that you need help with your debt, you’ll meet with a debt counsellor to draw up a budget designed around a new repayment plan that both you and your creditors will have to stick to. Debt review is a legal process, and in this step, the contract makes the new payment plan binding. This protects you from potential increases in monthly instalments and commits you to meet the new repayment plan.
Debt Consolidation Loan
Debt consolidation is a loan for the sum of all (or some) of your unsecured loans, like personal loans, from various credit providers. If you consolidate your debt, you are able to settle your high-interest debts and close the accounts, leaving you with only one debt repayment per month to the credit provider who granted you the consolidation loan.
Debt consolidation is a good option if you are struggling to make minimum payments and just want a little breathing room – lower monthly instalments. But this solution requires you to have a credit score good enough to qualify for a debt consolidation loan. And, like debt counselling, debt consolidation will cost you. The lower monthly instalments achieved by debt consolidation are only possible because your loan term is extended. This increases the period over which you pay interest and makes your debt more costly. So you should only ever extend your loan period as much as is needed.
Debt review can be considered as a better debt management solution as it can help a much wider variety of South African consumers.
If you as a consumer, have missed previous debt payments or have had legal action implicated against you, then a debt consolidation loan will not be an option, as no credit provider will lend you money at a reasonable interest rate that will be affordable to your specific financial situation. Many debt consolidation loans have high-interest rates, which will inevitably deteriorate the client’s financial situation.
If you need any further info or with to talk to a debt counsellor, then simply complete the callback request form here.