Many misconceptions surround debt counseling and debt consolidation loans. Many people believe this to be the same thing. The truth is that they are quite different. Both can leave you in worse situations than before.
There are many options available to you when financial relief is required. It is therefore important to research the options and learn the differences.
Consolidation loans can lead to more debt. Debt counseling is designed to help you get out of debt quickly and affordably.
Continue reading to learn why consolidation loans may not be the best choice…
Knowledge is key…
Understanding the differences between debt counseling and debt consolidation loans will assist you in making the right financial decisions for your family.
We will be breaking down the top two debt relief options so you can make an informed decision.
Debt Counselling is a highly regulated, sustainable option for debt relief
National Credit Regulator introduced debt counseling (also known as debt review) in 2007.
The NCR took swift action between 2007 and 2012 to protect millions of consumers left without help. Many people lost their entire lives because they couldn’t afford to pay their monthly debts. They decided to implement a debt relief process, called debt review/debt counseling.
This process was created to prevent struggling consumers from being blacklisted and to help them avoid losing their most valuable assets.
Debt counseling has proven to be a cost-effective and affordable option for thousands of South Africans who are suffering from excessive debt. This process ensures that all living expenses are covered so that the consumer can continue to live comfortably without taking on more debt.Debt counseling/debt review has many benefits
- To be able to afford your debt repayments, your monthly budget should help you cover your basic expenses.
- Your debt counselor will recommend ways to save money and cut costs.
- All debt repayments will now be combined into one monthly payment that is more affordable. This will allow you to have only one debit order each month for your debt repayments.
- Credit providers will not harass you for payment. These calls will now be directed to your debt counselor.
- Your assets, including your vehicle, home, and furniture, will be protected against repossession.
- To determine if the debt was legally granted, your debt counselor will investigate reckless lending. For more information about reckless lending, you can read the article.
- You can feel at ease knowing that your debt repayments will be covered every month with debt counseling.
The Debt counseling process has many other benefits.
Consolidation loans for debt consolidation: If another loan puts you in deep water
Consolidating debt is the process of consolidating multiple debts with a loan.
As they increase the term, you will remain in debt longer and continue to charge interest on the consolidation loan.
Consolidating debt with a personal loan involves using funds from the loan to repay each loan. Lenders make repayments on behalf of the borrower.
Consolidation loans do not cover unsecured debt like personal loans, credit cards, and store accounts. This loan is considered a consolidation loan with high risk.
A consolidation loan from a company might be the best option if you have multiple debts and are in excess of your credit limit.
However, debt consolidation loans can lead to more financial problems than you might think. They have high interest rates and admin fees. You will not get financial relief by getting another loan. It will give you one installment at a higher interest and longer-term.
You will need to pay an additional 36% interest each year if your credit score is lower than 690 FICO.
While you may pay a lower monthly installment on your debt, the high-interest rate associated with a consolidation loan will mean that you will pay more over the course of time.
Debt Union has helped thousands in South Africa with debt counseling. Talk to one of our consultants before you make a decision to consolidate your debts.
When they realize that the loan has worsened their financial situation, consumers who have taken out debt consolidation loans will often go back to Debt Union.
Please fill out the form below to send us your contact information. We will get back to you as soon as we can to discuss the best solution.
Debt Union is South Africa’s number one debt counselor. We have helped thousands of people with their debt and provided them immediate financial relief. Just fill out the contact form below to receive a quote based on your situation.