How is debt consolidation different from debt counselling?

By Isabelle Coetzee

If you’re struggling to manage your debt and you decide to seek help, you will likely come across the terms “debt counselling” and “debt consolidation”.

Although they sound like synonyms, these are two separate debt solutions. We consider the differences between them, and we look at how you can select the right one for your circumstances.

Tip: If you’re ready to reduce your monthly debt repayments, have a look at our debt solutions.

What’s the difference?

A debt solutions company will consider your unique situation and, should either prove suitable, advise you to either start debt counselling or debt consolidation. But before you consent, you ought to understand the differences between these two.

  • Debt counselling is when a debt counsellor assesses your outstanding debt, and restructures it by reaching out to your creditors and negotiating lower interest rates and a longer payment term. Once you’ve signed up for this, your creditors will no longer be able to contact you directly and your debt counsellor will work with you until your debt is completely settled.
  • Debt consolidation is when you take out a loan that will cover your outstanding debt from numerous creditors so that you only have a single monthly instalment to worry about. The aim is to take out a loan with a lower overall interest rate than your outstanding debt, and to simplify what you have left to repay.

Both aim to assist over-indebted consumers who are no longer able to meet their financial obligations to their creditors. However, they approach this problem from different angles and offer different kinds of support.

READ MORE: Do interest rates really matter when settling debt?

Which option is right for you?

It’s important to know that while you’re under debt counselling you will not be able to take out any further credit. A note will be made on your credit report stating that you’re under debt counselling.

However, this is ultimately for your own good and you should not let this discourage you if you’re struggling to manage your loan repayments. 

The best way to discover whether you should opt for debt counselling or debt consolidation is to speak with a qualified debt counsellor. Go to this page and fill out the form. You will receive a call from a debt counsellor who will help you determine the right option for your circumstances. 

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