“Many people don’t know the difference between a debt consolidation loan and debt consolidating review.”
Matthys Potgieter, debt expert and spokesman at DebtSafe, said: “When people hear ‘consolidating debt’ they assume it refers to a debt consolidation loan only but that’s not true.”
Potgieter sheds light on both concepts and encourages over-indebted South Africans to make an educated choice to deal with their debt.
The consolidation loan
A consolidation loan is a credit agreement offered with the aim of settling all existing debt into a single debt.
“There are a list of requirements that have to be met before a person will get a consolidation loan. The loan applicant has to be a so-called ‘A+ student’ who manages her or his debt well.
“The loan provider will do an affordability check to make sure the applicant needs to be able to pay the consolidation loan as well,” Potgieter.
“People who are struggling too hard to pay off their current debt will not qualify for a consolidation loan.”
The debt review
The debt review – also known as debt counselling – is a legal process ordered by the National Credit Act to help people who can’t pay off their current debt.
People who do not qualify for a consolidation loan may apply for debt review.
Debt review benefits
A debt review includes all the benefits of a consolidation loan but include easier repayments as the instalments can be reduced by up to 60%.
The applicant gets financial management education to avoid the debt pitfall in future.
When the applicant finishes the debt review and has paid off all debt, he or she gets a clearance certificate and clean credit record.