If you are struggling to repay your debts, you may be considering either debt review or debt consolidation – they are not the same thing. Scorpion explains what these two terms mean so you can make an informed decision that is best for your specific debt situation.

Debt review

Sometimes also called debt counselling, this is when a professional debt counsellor assesses all your debts and works out a structured debt repayment plan for you. The debt counsellor negotiates new repayment terms with your credit providers so you pay less towards your debts for a longer period of time, making it more affordable on your monthly commitments. Note that you can approach your credit providers yourself to find out about negotiating repayment.

Advantages:

• You may feel better knowing that a professional is helping you out of your debt situation, so you don’t give in to overwhelming feelings of depression or hopelessness
• Creditors will not be able to take legal action against you or contact you directly anymore
• It can protect your assets from being repossessed by the credit provider

Disadvantages:

• You will not be allowed access to any further credit – you cannot take out any new loans or use your existing credit cards and store accounts
• You will have to pay debt counsellor fees
• There will be a flag on your credit report that you’re under debt review

Debt consolidation

This is when you are struggling to stay on top of all your different debt repayments, so you take out a debt consolidation loan yourself to pay off all your various debts, meaning that you will now only have one repayment to make to the credit provider of the loan. So multiple loans, agreements and interest rates become a single monthly payment, with one interest rate and a single repayment term.

Advantages:

• It's easier to stay on top of what you owe because you only owe one credit provider
• Borrowing money at a lower interest rate to pay off loans or credit cards that are at a higher interest rate could save you money
• No additional fees for counsellors

Disadvantages:

• The consolidation loan is likely to come with high upfront fees and interest rates, as you are a credit risk
• Combines your debts, but does not reduce them, as you will still owe the same amount, just to one creditor instead of many
• Debt consolidation loans are usually stretched over a long period, which means that your total interest payments add up to an expensive debt

Scorpion can help you find out if your debt has prescribed, deal with judgments against your name and help you understand your rights in terms of the law. Need help? Click here.

You may also be interested in:
5 reasons to check your credit report
What is debt review?
Beware of claims on prescribed debt

* This is not financial advice, it is basic legal advice only and should not be relied on solely. Information is correct at the time of publication.