We consider the dissimilarities of debt consolidation and debt counselling, as well as the advantages and disadvantages of each.

If you're struggling to meet your debt obligations, there are two main debt solutions you should consider: debt counselling and debt consolidation.

Although they offer the same end-result, both are designed to assist different degrees of indebtedness, and they offer different support structures.

What is debt consolidation?

Debt consolidation meaning: a simple explanation

Debt consolidation means combining two or more existing debts into a single new loan so that you make only one monthly repayment, ideally at a lower overall interest rate. Instead of juggling several due dates and varying terms, you deal with one lender, one instalment, and one set of conditions.

How consolidation simplifies three common South African debts

Imagine you owe R 15 000 on a store account at 21% interest, R 40 000 on a personal loan at 18% interest, and R 60 000 on vehicle finance at 13% interest. Each account has its own payment date, minimum amount, and penalty structure. A debt consolidation loan rolls all three balances into a single facility - say R 115 000 at 15% interest over 60 months. You now have one debit order to track, one interest rate to manage, and a clear end date for becoming debt-free.

What is a debt consolidation loan specifically?

A debt consolidation loan is a personal or unsecured loan taken out for the express purpose of settling your other credit agreements. The lender pays off (or you pay off) each existing account, leaving only the consolidation loan on your profile. To see whether you qualify and at what rate, check the latest offers available through ClearScore.

If you have numerous debts you need to service every month, each with their own interest rate and repayment terms, you may struggle to stay on top of them all.

By consolidating your debt, or taking out a debt consolidation loan, you can combine your debt into a single monthly payment, with one interest rate and a single repayment term.

Advantages and disadvantages:

Debt consolidation entails taking out a new loan and using it to immediately settle your outstanding debt. Ideally, you will have an overall lower interest rate, and your debt will be structured more simply going forward.

The downside of debt consolidation is that you may end up with an overall longer repayment term, and you won't have access to any legal assistance if creditors take action against you. However, you will still have access to new credit. This means you could open a store account or take out another loan.

See what offers you're eligible for on ClearScore (a credit broker, not a lender)

This option is right for you if:

You are scrambling to meet your debt obligations, and you just need a little push in the right direction. By restructuring your debt, you may be able to make ends meet more comfortably again.

What is debt counselling?

Debt counselling, sometimes known as debt review, is an official debt solution which was implemented by the National Credit Act in 2007. The goal is to help over-indebted South Africans who are unable to pull themselves out of a debt trap.

If you sign up for debt counselling, you will be assigned a debt counsellor who will reach out to your creditors. They will negotiate lower interest rates and smaller repayment amounts.

Advantages and disadvantages:

The benefits of debt counselling include being able to rest assured that a debt expert will assist you with your debt, and your creditors will no longer be able to take legal action against you or contact you directly.

On the other hand, you won't be allowed to access any new credit until the debt counselling process is concluded and your debt is settled. There will be a note on your credit report, stating that you're under debt counselling.

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However, this will ultimately benefit you because you will no longer be tempted to take on new debt. This will allow you to focus on settling the amount you already owe.

This option is right for you if:

You are already at odds with your creditors. You would likely have been contacted by collectors, who will have warned you about the legal implications of missed payments.

If you're unsure which option is right for you, it's best to chat to a financial adviser or a debt counsellor about your options. In addition, you can do our free Coaching plan on how to stay on top of your debt.

Quick summary: pros and cons of each debt solution

Below is a concise overview of the debt counselling advantages and disadvantages alongside those of debt consolidation, so you can compare them without scrolling through the detail above.

Debt consolidation - advantages and disadvantages

• Advantage: Simplifies multiple debts into a single monthly payment with one interest rate.

• Advantage: You retain full access to new credit, so your financial flexibility is not restricted.

• Advantage: No formal flag is added to your credit report - only the new loan account appears.

• Disadvantage: You receive no legal protection from creditors if you fall behind on the consolidated loan.

• Disadvantage: The repayment term may be longer, meaning you could pay more interest over time.

• Disadvantage: Continued access to credit can tempt you into taking on additional debt before the consolidation loan is settled.

Debt counselling - advantages and disadvantages

• Advantage: A registered debt counsellor manages negotiations with every creditor on your behalf.

• Advantage: Legal protection under the National Credit Act restricts creditors from suing you or repossessing assets, provided you remain compliant with the restructured repayment plan.

• Advantage: Interest rates are typically reduced, lowering the overall cost of your debt.

• Disadvantage: You cannot take on any new credit until you receive a clearance certificate.

• Disadvantage: A debt-review flag appears on your credit report for the duration of the process.

• Disadvantage: The process can take several years to complete, depending on the total amount owed.

Debt consolidation vs debt review: a side-by-side comparison

If you are weighing up debt consolidation vs debt review, the table below highlights the key differences at a glance. Understanding how each option works can help you choose the right path for your financial situation.

In short, debt consolidation and debt review are not the same thing. Debt consolidation is a lending product you arrange independently, while debt review is a structured legal process overseen by a professional. If you are unsure which route suits your circumstances, explore the offers available on ClearScore or speak to a registered debt counsellor.

Frequently asked questions about debt consolidation and debt counselling

Is debt consolidation the same as debt review?

No. Debt consolidation involves taking out a new loan to combine multiple debts into one monthly payment. Debt review (also called debt counselling) is a formal legal process in which a registered debt counsellor negotiates reduced repayments and interest rates with your creditors. With consolidation you remain responsible for managing the loan yourself, whereas debt review places you under the protection of the National Credit Act and prevents creditors from taking legal action against you.

Is debt counselling the same as debt review?

Yes - debt counselling and debt review are two names for exactly the same process. The National Credit Act refers to it as "debt review," while most South Africans know it as "debt counselling." In both cases a registered debt counsellor assesses your financial position, restructures your repayments, and distributes a single monthly amount to your creditors through a payment distribution agency.

Is debt counselling a good idea in South Africa?

Debt counselling can be an excellent option if you are over-indebted and struggling to keep up with multiple creditors. It offers legal protection against collections and repossessions, and your debt counsellor will negotiate lower interest rates on your behalf. The trade-off is that you cannot access new credit until you receive a clearance certificate, and the process may take several years to complete. If your debt is still manageable but difficult to track, a debt consolidation loan may be the simpler route.

Can I switch from debt counselling to debt consolidation (or vice versa)?

Switching from debt counselling to debt consolidation is possible but not straightforward. You would need to formally withdraw from the debt-review process, which removes your legal protection and means creditors can resume collection activity. Moving from consolidation to debt counselling is simpler - if your single consolidated loan still proves unaffordable, you can apply for debt review at any time. In either case, consult a registered debt counsellor before making the change.

Will debt consolidation or debt counselling affect my credit score?

Both options have an impact on your credit report. A consolidation loan adds a new credit account, which may temporarily lower your score, but consistent repayments will rebuild it over time. Debt counselling places a flag on your report that signals you are under debt review; this flag is removed and your credit profile is updated once all listed debts are settled and a clearance certificate is issued. In both cases, the long-term benefit of clearing your debt far outweighs the short-term effect on your score.

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