How debt counselling works
Debt counselling is a legal process introduced by the National Credit Act (NCA) for people who are overindebted. A counsellor evaluates your finances, negotiates with creditors, and sets up a structured repayment plan. While under debt counselling, you benefit from legal protection and lower monthly instalments, but you cannot take on any new credit until the process is complete.
Key benefits of debt counselling:
- Legal shield: Creditors cannot pursue legal action or repossess assets.
- Reduced repayments: Negotiated interest rates often lead to more affordable monthly payments.
- Clear route to settling debt: Once you finalise all repayments, your credit profile updates, and you regain access to new credit.
How debt consolidation works
Debt consolidation is not a legal process. Instead, you apply for a new loan, use it to pay off multiple debts, and then make one monthly payment on the consolidation loan. Approval typically depends on a solid credit score and a steady income.
Key benefits of debt consolidation:
- Simplicity: One monthly payment replaces multiple instalments.
- Potential cost savings: If you get a lower interest rate than your current debts, you could reduce your overall costs.
- Privacy: There is no formal notification on your credit bureau record for consolidating debt.
Major differences at a glance
-
Legal status
- Debt counselling: Court-approved under the NCA.
- Debt consolidation: A private agreement with a lender.
-
Eligibility
- Debt counselling: Designed for those who are overindebted.
- Debt consolidation: Best for those with good credit scores who can qualify for a new loan.
-
Monthly payments
- Debt counselling: Reduced via negotiation.
- Debt consolidation: One payment to the new loan.
-
Credit bureau notification
Need debt counselling or consolidation?
Explore DebtBusters' solutions for reducing your interest rates and unlocking cash.
Find out more- Debt counselling: Noted on your profile during the process.
- Debt consolidation: Your record only reflects the new loan, not a legal process.
-
Legal protection
- Debt counselling: Yes.
- Debt consolidation: No.
Which one should you choose? Debt counselling vs debt consolidation
If you are overindebted, debt counselling offers legal safeguards and a clear structure for settling accounts. If you simply want fewer monthly payments and can secure a favourable loan, debt consolidation might be more convenient.
Frequently asked questions
-
Does debt counselling affect my credit score?
Yes. Your credit report notes that you are under debt counselling, and you cannot open new credit accounts. After you settle your debts, the record is updated, and you can rebuild your credit. -
Can I do debt counselling and debt consolidation at the same time?
No. Debt counselling is a legal restructuring, whereas consolidation requires a new loan. They do not overlap. -
Do I need a good credit score to consolidate my debt?
Typically, yes. Lenders check your creditworthiness before approving a consolidation loan.
Seeking professional assistance
At DebtBusters, we walk you through debt counselling and consolidation options. Our qualified advisers examine your situation and recommend the best strategy for achieving a debt-free future.
For personalised guidance, reach out to us:
- Email: info@debtbusters.co.za
- Phone: 086 999 0606
Take charge of your finances today. We will support you every step of the way, one repayment at a time.
Let us call you back
Fill out our form below to get a free callback from one of our consultants to discuss your debt situation.
Jump to form
