Debt Consolidation Loans vs Debt Review: Which One is Better for You?

 

 

If you are struggling with debt and looking for a way to reduce your monthly payments and get out of debt faster, you may have heard of two options: debt review and debt consolidation loans.

Both of these are methods of debt relief that can help you manage your debt more effectively, but they are completely different terms. In this article, we will compare debt review and debt consolidation loans, and help you decide which one is better for you.

Debt consolidation loans involve taking out a new loan to pay off all your existing debts. This means that you will have one monthly payment instead of multiple payments. The advantage of this is that you can often get a lower interest rate on the new loan than you were paying on your old debts. However, the disadvantage is that you may end up paying more interest over the long term if you take longer to pay off the new loan.

Debt review or debt restructuring, on the other hand, is a process where a debt counsellor helps you to restructure your debts so that you can afford to pay them off. The advantage of this is that it can help you to avoid legal action from your creditors and it can also help you to reduce your monthly payments. However, the disadvantage is that it can take longer to pay off your debts and it can also affect your credit score, as this is a legal process and you won't be able to enter into credit agreements once a debt review order has been granted.

 

 

What is a Debt Consolidation Loan?

A debt consolidation loan is a type of loan that you can take out to pay off all your existing debts. By doing this, you will simplify your debt management by having only one loan to repay, instead of multiple accounts with different interest rates and terms.

Ideally, a debt consolidation loan will have a lower interest rate and a shorter repayment term than your original debts, which means you will save money on interest and get out of debt faster.

However, to qualify for a debt consolidation loan, you will need to have a good credit score, a stable income, and enough collateral or security to secure the loan.

 

What is Debt Review / Debt Restructuring?

Debt review, also known as debt counselling, is a legal process that is regulated by the National Credit Act of 2007. It is designed to help over-indebted consumers who cannot afford to pay their debts on their own.

Debt review involves working with a professional debt counsellor who will assess your financial situation, negotiate with your creditors, and create a new repayment plan for you.

The repayment plan will lower your monthly installments and interest rates, and extend your repayment term. You will make one monthly payment to a payment distribution agency (PDA), who will then distribute the money to your creditors according to the plan.

You will also be protected from legal action, harassment, and blacklisting by your creditors while you are under debt review. One thing to remember though, is that while you are under debt review, you won't be allowed to enter into new credit agreements.

 

Advantages and Disadvantages of Debt Consolidation Loans

Debt consolidation loans can also be beneficial for consumers who want to simplify their debt management and save money on interest. Some of the advantages are:

• You will have only one loan to repay each month, which will make it easier to keep track of your payments and budget.
• You may get a lower interest rate and a shorter repayment term than your original debts, which means you will pay less interest and get out of debt faster.
• You may improve your credit score by paying off your existing debts and maintaining a good payment history on your new loan.
• You may have more flexibility in choosing the amount, term, and provider of your new loan.

However, debt consolidation loans also have some disadvantages that you should consider before you apply. Some of the risks are:

• You may not qualify for a debt consolidation loan if you have a poor credit score, a low income, or no collateral or security to offer.
• You may end up paying more interest in total if you choose a longer repayment term or a higher interest rate than your original debts.
• You may incur additional fees or charges when taking out a new loan or settling your existing debts early.
• You may be tempted to take on more debt if you do not close your old accounts or change your spending habits.

 

Advantages and Disadvantages of Debt Review / Debt Restructuring

Debt review has several advantages for consumers who are over-indebted and need professional help to manage their debts. Some of the benefits are:

• You will pay less each month, which will free up some cash flow for your living expenses.
• You will pay less interest in total, which will reduce the cost of your debt.
• You will have a clear plan to get out of debt within a reasonable time frame.
• You will have peace of mind knowing that your debt counsellor is handling your creditors on your behalf.
• You will avoid legal action, repossession, garnishee orders, and negative listings by your creditors.

 

However, debt review also has some disadvantages that you should be aware of before you apply. Some of the drawbacks are:

• You will not be able to access any new credit while you are under debt review, which means you will have to rely on cash or savings for emergencies or purchases.
• You will have a note on your credit report indicating that you are under debt review, which may affect your credit score and future credit applications.
• You will have to pay fees to your debt counsellor and the PDA, which may add to the cost of your debt.
• You will have to stick to the repayment plan until all your debts are settled, which may take several years depending on your level of indebtedness.

 

Which One is Better for You?

The answer to this question depends on your personal circumstances and preferences. Debt review and debt consolidation loans are both viable options for debt relief, but they are suited for different levels of indebtedness and financial situations. 

Generally speaking, debt review / restructuring is better for you if:

• You are over-indebted and cannot afford to pay your debts on your own.
• You need professional guidance and support to manage your debts.
• You want to lower your monthly payments and interest rates.
• You want to avoid legal action and blacklisting by your creditors.

 

Debt consolidation loans are better for you if:

• You are not over-indebted and can afford to pay your debts on your own.
• You have a good credit score and a stable income.
• You want to simplify your debt management and save money on interest.
• You want to improve your credit score and access new credit in the future.

 

Conclusion

In summary, debt consolidation loans are best for people who have multiple debts with high interest rates and want to simplify their payments. Debt review is best for people who are struggling to make their monthly payments and need help restructuring their debts.

Both have their pros and cons, and the best option for you will depend on your financial situation and goals. Before you choose either option, make sure you do your research, compare different providers, and understand the terms and conditions of the agreement.

If you need more information or advice, you can contact a reputable debt counsellor or a financial planner who can help you make an informed decision.

"Remember, getting out of debt is possible, but it requires commitment, discipline, and patience."