If you want to get out of debt, it is important to know how to differentiate between debt consolidation and debt review. Picture: Freepik
People can feel overwhelmed when it comes to managing their money, especially when they are faced with financial obligations and mounting debts.
With increasing debt, the logical step is to seek a solution that will help you alleviate the burden and help you regain control of your finances. This could be debt consolidation and debt review.
Denise Hartley, chief operations officer at FNB Collections, said: “While debt consolidation and debt review are terms that are loosely used interchangeably, they mean completely different things.”
Hartley said that it is crucial that people understand the difference between the two, so they can make informed decisions about the most suitable solution for their financial situation.
Here’s a look the difference between debt consolidation and debt review.
Debt consolidation
According to Hartley, the process of debt consolidation involves the combining multiple debts into a single loan. This service is offered by registered financial service providers or lenders such as banks.
With debt consolidation, consumers go through the standard affordability and credit assessment processes. The people who are successful will be allowed to consolidate all or some of their debt into a single loan with one monthly instalment over an agreed upon term.
Consolidating your debts can help you avoid the struggle of juggling multiple repayments that have separate interest rates and initiation fees from different lenders.
It can also simplify your budget and improve cash flow management, especially if the outcome reduces your monthly instalment or the interest rates charged on the consolidation loan.
“However, it is important to note that debt consolidation does not eliminate or reduce the actual debt amount you owe,” Hartley said.
Debt review
Hartley said that debt review is a statutory or legal process that provides debt relief to over-indebted consumers through a debt review process.
According to Neil van der Walt, marketing manager, DebtSafe, the debt review process helps consumers when they can’t make ends meet, to keep up with their debt payments.
Here’s a look at how the debt review process works:
– The debt review process starts with a consumer approving the process and completing the application form (Form 16).
– The process then goes through administrative procedures that are handled by a registered debt counsellor.
– Then the National Credit Regulator (NCR) will issue a clearance certificate to complete the process.
– Finally, this certificate is submitted to the credit bureau who will then remove the debt review flag which sets their credit score back to zero.
“Only debt counsellors who are registered with the National Credit Regulator ought to provide these services,” Hartley said.
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