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Consolidation of Debts compared to Reviewing Debts: Understanding the Variances
When faced with how to debt consolidation , it is crucial to explore your options for debt relief and control. 2 typical approaches are debt consolidation and debt review. In this article, we will discuss the differences between these two methods and help you understand which one might be appropriate for your financial situation.


Consolidation of Debts
Consolidation of debts includes merging multiple debts into a single loan or credit facility. The principal goal is to simplify repayment by consolidating various debts into one feasible monthly payment. Here are some key points to consider about debt consolidation:


1. Efficient Repayment
With debt consolidation, you make a single payment each month to a lender who consolidates your debts. This simplifies the repayment process and helps you keep track of your finances more easily.

2. Lower Interest Rates
One possible advantage of debt consolidation is the possibility of securing a decreased interest rate on the consolidated loan. This can help decrease your overall interest costs and potentially accelerate your debt repayment.

3. Prolonged Repayment Period
In some cases, debt consolidation may involve extending the repayment period to make the monthly payments more affordable. While this can provide short-term assistance, it may result in paying more interest over the long term.

Reviewing Debts
Reviewing debts, also known as debt counseling, is a formal debt rehabilitation program governed by the National Credit Act (NCA) in South Africa. Debt review aims to support individuals in dealing with their debts and achieving economic stability. Here are some key points to consider about debt review:

1. Debt Assessment and Negotiation
Under debt review, a debt counselor assesses your financial situation, negotiates with creditors on your behalf, and develops a repayment plan that suits your financial capacity. The counselor aims to reduce interest rates, prolong repayment terms, and create a manageable payment plan.

2. Safeguard from Legal Action
While under debt review, you receive legal safeguard against legal actions and asset repossession by your creditors. This can provide assistance and allow you to focus on repaying your debts without the constant risk of legal action.

3. Structured Repayment Plan
Debt review involves making consolidated payments towards your debts as per the agreed-upon repayment plan. The debt counselor ensures that your creditors receive their allocated payments and manages the distribution of funds on your behalf.

FAQ - Debt Consolidation vs. Debt Review
Q1: Which choice is better, debt consolidation, or debt review?
A1: The decision between debt consolidation and debt review relies on your specific financial circumstances. Debt consolidation is appropriate for individuals with manageable debts and good credit who want to simplify their repayment process. Debt review is more suitable for individuals experiencing financial hardship and struggling to meet their debt obligations.

Q2: Will debt consolidation or debt review affect my credit score?

A2: Both debt consolidation and reviewing debts can influence your credit rating. Consolidation of debts may have a temporary unfavorable effect because of the credit application and closing of previous credit accounts. Debt review can also influence your creditworthiness as it involves a reviewing debts flag on your credit record. However, improving your financial condition and repeatedly meeting your debt obligations can help rebuild your credit over time.

Q3: Can I still apply for new credit while under consolidation of debts or debt review?
A3: While it is feasible to apply for new credit while under debt consolidation or reviewing debts, it is advisable to focus on repaying your existing debts first. Taking on new credit may in addition burden your financial circumstances and make it challenging to accomplish debt assistance and stability.

Q4: How long does consolidation of debts or reviewing debts typically take?
A4: The duration of consolidation of debts or debt review varies depending on several factors, including the amount of debt, the complexity of the situation, and the cooperation of creditors. Debt consolidation typically takes a few months to complete, while debt review programs usually last between three to five years.

Q5: Can I cancel consolidation of debts or debt review?
A5: With debt consolidation, you can typically cancel the arrangement at any time by paying off the consolidated loan. However, canceling reviewing debts requires a court application and proper justification, as it is a legally binding process regulated by the NCA.

Q6: Will I still be responsible for paying my debts under consolidation of debts or reviewing debts?
A6: Yes, under both debt consolidation and debt review, you are still responsible for repaying your debts. Debt consolidation combines your debts into one loan, while reviewing debts creates a structured repayment plan that prioritizes affordability.

Q7: Can I switch from debt consolidation to debt review or vice versa?
A7: It is possible to switch from consolidation of debts to debt review or vice versa, depending on your financial situation and the advice of a debt counselor. However, it is important to consider the implications, costs, and requirements associated with each option.

Q8: Will my creditors agree to debt consolidation or reviewing debts?
A8: While there is no guarantee, many creditors are open to debt consolidation or debt review as it demonstrates your commitment to repay your debts. However, the final decision rests with the creditors, and they may consider factors such as your credit history, income, and overall financial situation.

Q9: Can I negotiate better terms with my creditors under consolidation of debts or reviewing debts?
A9: Consolidation of debts allows you to negotiate better terms, such as lower interest rates, with the new lender. Reviewing debts, on the other hand, involves negotiations with your existing creditors through a debt counselor to develop a manageable repayment plan.

Q10: Should I seek professional assistance for consolidation of debts or debt review?
A10: While it is possible to pursue consolidation of debts or reviewing debts on your own, seeking professional assistance from a reputable debt counselor or financial advisor can provide valuable guidance and ensure that you make informed decisions based on your unique financial situation.

It is important to consult with a qualified debt counselor or financial advisor to assess your situation and determine the most suitable debt relief option for your needs.




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