Debt Consolidation

What is debt consolidation?

1. Debt consolidation loan

A debt consolidation loan allows you to pay off multiple debts with a new, bigger loan. This could translate into:

• One monthly repayment
• Fewer fees
• Lower interest, potentially

While convenient, bear in mind that a debt consolidation loan may have a longer repayment term. It can also attract higher interest rates than some of your original debt – for example, if you have asset-based finance – increasing the total cost over time.

Be aware that if you are overindebted, meaning, your monthly repayments are higher than your total income, you will not qualify for a debt consolidation loan. In this case, debt counselling may be a viable option.

2. Debt consolidation without a loan

If you are overindebted, meaning, your monthly repayments are higher than your total income, you may well benefit from debt counselling as a debt consolidation solution. A debt counsellor will:

• Negotiate lower interest rates with your creditors on your behalf
• Restructure your debt into an affordable repayment plan, consisting of one payment per month
• Protect you from legal action and creditors contacting you, in terms of the National Credit Act (NCA)

Debt consolidation loan vs debt counselling: Which is right for you?

The table below compares the two options.

	Debt consolidation loan	Debt consolidation through debt counselling
Interest rates	May be higher	Usually lower
Costs	May have hidden fees (origination, processing and administrative fees, variable interest rates, annual fees)	Involves a monthly fee
Pros	Simplified repayments	Lower debt burden
Cons	Can lead to more debt if not managed carefully	May take longer but offers more sustainable relief

Debt consolidation FAQs

Is debt consolidation right for me?

If you’re overindebted, consolidating your debts into a single, manageable monthly payment can simplify your finances and free up cash.

Bear in mind that if you consolidate your debt through debt counselling, you won’t be allowed to apply for new credit until you successfully complete the process and get your clearance certificate.

Will debt consolidation affect my credit score?

If you choose to consolidate your debt through debt counselling, your credit score remains protected under the NCA.

You will be listed as undergoing debt counselling, but you won’t face penalties for past missed payments.

Overindebted consumers who successfully complete debt counselling have, on average, significantly higher credit scores than those who do not engage in the process.

Debt consolidation loan vs. debt counselling: What’s the difference?

Debt consolidation loan

• You take out a new loan to pay off multiple debts
• You make one monthly repayment
• Note that such loans may come with longer repayment terms and higher interest rates.

Debt counselling

• A legal process designed to help you become debt free if you’re overindebted
• A debt counsellor will negotiate lower interest rates on your outstanding loans with your creditors
• You’ll receive a structured, affordable repayment plan
• Creditors won’t be able to take legal action against you, or repossess your assets

Can I consolidate debt if I have bad credit?

There is no official “blacklist” under the NCA, but a poor credit record makes it difficult to qualify for a consolidation loan.

However, you can still consolidate your debt through debt counselling, even with poor credit.

How long does the debt consolidation process take?

There’s no set timeframe, but debt counselling typically helps clients to become debt-free within 60 months.

Your timeline depends on:

• Total debt owed
• Interest rates
• How much you can afford to repay each month

Can my debt be consolidated if I’m self-employed?

Yes! If your income fluctuates, you can still consolidate your debt, as long as you can prove you can make one monthly repayment, even from non-traditional earnings.

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