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Debt Consolidation Explained

Debt Consolidation

There are many relief measures for individuals or households to consider when in debt. The most common debt relief measures are debt review and debt consolidation. This article will focus on the difference between the two with a focus on debt consolidation. 

Debt review, or debt counselling, is a rehabilitation program for people who are having trouble meeting their debt obligations. The goal of debt counselling is to help indebted consumers regain control of their finances. This is achieved through a structured repayment plan and/or the suspension of credit agreements. To be put under debt review, the consumer is required to apply for debt review at a debt counselling organisation. 

The debt counsellor will assess the consumer’s financial situation and consider whether the consumer is over-indebted or not. If the consumer is over-indebted, the debt counsellor will set up a repayment proposal which will be provided to all the consumer’s creditors for consideration. The matter will then be referred to a Magistrate’s court for an order declaring the consumer over-indebted.

Debt consolidation simply involves taking out a loan to pay off all or some of your unsecured loans, leaving the consumer with only the debt of the consolidation loan. It is similar to applying for a normal loan. The consumer will still be subjected to  a credit assessment to determine if he or she qualifies for a loan, and if so, for how much the consumer qualifies for.

Debt consolidation can be an effective relief measure for consumers left with little to no income after paying off monthly debts.

The advantages of a debt consolidation loan

  • Usually, your monthly repayments will be lower than the total monthly amount you are currently spending to repay your loans.
  • It is a more convenient way of repaying loans. Instead of making several payments to different creditors, you only make a single monthly payment.
  • Your credit rating may improve since it is unlikely that you will forget to make a single payment per month.
  • There is only one, fixed interest rate payable. 

The disadvantages of a debt consolidation loan

Debt consolidation may only be a temporary fix, especially if the loans were taken for non-essential items or services. That is why it is important to look at the way you are spending money, to ensure you are not put in a similar position again. If you are not disciplined in paying off your consolidation loan, you might end up with even more debt.


Debt consolidation loans are helpful if you are unlikely to take out several loans for the same reasons in the future, such as hospital expenses, tuition fees, etc. Consolidation loans are mostly beneficial to people who manage their finances well. It is important to remain disciplined and committed to paying off your consolidation loan while avoiding borrowing any more money during that period. 

Chane Henney

Chane holds an LLB and is currently in the process of completing an LLM. She has in-depth knowledge of the debt review processes, debt consolidation, and applicable legislation such as the National Credit Act.