Consolidation Loans vs Debt Counselling
When your debt repayments are high and you are struggling to cover your day to day living expenses, it is time to look for help.
The help can come in two forms – a loan that covers all your debt (Consolidation loan) or hiring a professional company to assist you with debt counselling or debt review. The question is, which of the two costs you less in the long run?
A debt consolidation loan is a single loan taken to cover all other debt, resulting in one payment every month. This will be done to eliminate having to pay multiple creditors every month and be done to lower debt repayments on a monthly basis. Customers who opt for these loans forget to calculate the interest they will pay over the loan period. They only see what they will be paying from month to month and how it will free up money for their monthly living expenses.
The longer the loan period, the less a customer will pay on a monthly basis, but the more interest he or she will pay. The loan is also subject to interest rate increases, which can increase the loan payment, making it difficult to make ends meet again.
The answer is to consider debt counselling instead. The National Credit Act (NCA) introduced debt counselling to prevent customers from being blacklisted. It is a safer and more effective solution.
The advantages of debt counselling are:
- There will only be one reduced fixed monthly payment towards the debt. This will free up money for day to day living expenses.
- All of the customer’s assets are legally protected by the NCA from creditors. There will be no legal action to repossess any goods
- Creditors may not call or issue legal letters. They can only communicate with the debt counsellor and credit bureaus are not allowed to blacklist.
- Your credit profile is flagged at the credit bureaus meaning you cannot apply for any credit anywhere. This is a benefit because it will help you to control your debt.
- Once all the debt is paid off the debt counsellor will issue yourself, all creditor providers and credit bureaus with a clearance certificate
- Once your name has been cleared you will be able to apply for credit.
The main advantage of debt counselling is that more of your money goes towards the capital and not on interest. The balance of the debt decreases far quicker than when not employing the assistance of a debt counsellor and the total interest paid on a reduced interest rate account over the lifetime of the debt can be lower.
The other advantages of hiring a debt counsellor is the peace of mind it brings. When under debt review the counsellor will ensure there is enough money to pay for daily living expenses and pay for the debt. This will relieve unnecessary stress.