Debt Review vs Consolidation Loan: Which Is Right for You?

Managing debt can be a major challenge, particularly when multiple creditors and repayment dates make it difficult to stay organised. For many South Africans, debt review and debt consolidation loans have become two of the most practical ways to regain financial control. While both aim to make debt more manageable, they operate in very different ways. Debt review is a legal process that offers protection and structure to consumers who are already over-indebted, whereas a consolidation loan is a financial solution for those who still qualify for credit but want to simplify repayments.

Key Takeaways

• Debt Review Offers Legal Protection: Debt review helps South Africans who are over-indebted by restructuring repayments through an NCR-registered counsellor, protecting them from legal action and creditor harassment until their debts are fully settled.
• Consolidation Simplifies Debt Management: A consolidation loan combines several debts into one manageable account with a single monthly payment, often at a lower interest rate, making budgeting easier while keeping access to credit open.
• Different Impact on Credit Access: Debt review restricts credit until completion but helps restore credit standing after clearance, while a consolidation loan allows continued borrowing but can harm creditworthiness if not managed responsibly.

What Is Debt Review?

Debt review is a structured financial relief process designed for South Africans who find it difficult to meet their monthly financial obligations. Introduced under the National Credit Act 34 of 2005 (NCA), it serves as a government-approved solution to help those overwhelmed by debt. The process was developed to address the growing issue of consumer over-indebtedness and to offer individuals a clear path to regaining financial stability.

This system was created with consumer protection and affordability in mind. It is a highly regulated process, handled exclusively by Debt Counsellors registered with the National Credit Regulator (NCR). Once you enter debt review, your appointed counsellor evaluates your financial situation and negotiates new repayment terms with your creditors. These restructured payments are adjusted to a level that you can realistically afford each month. The main objective is to help you repay all your debts while maintaining enough income for essential living expenses.

During the course of debt review, your responsibility is to consistently pay your reduced monthly instalments as outlined in your repayment plan. When the process is completed and all your debts are settled, your credit record will be updated to reflect a cleared status, allowing you to regain financial freedom and rebuild your credit profile responsibly.

What Does It Mean to Be Under Debt Review?

Being under debt review signifies that you have officially appointed a qualified debt counsellor to assess your finances and confirm that you are over-indebted. This means your current income is insufficient to cover all your monthly debt repayments and living expenses without financial strain.

Once under review, your counsellor works to protect you from creditor harassment, legal action, and asset repossession while negotiating reduced payments on your behalf. The NCR oversees and regulates the entire process to ensure fairness, transparency, and compliance with the National Credit Act. This framework ensures that both consumers and creditors adhere to the same rules, creating a lawful and practical solution for managing overwhelming debt.

How Does Debt Review Work?

Below is a detailed explanation of how the debt review process operates in South Africa:

1. Assessment: A registered debt counsellor carefully reviews your financial situation, including income, living expenses, and outstanding debts. This evaluation helps determine whether you meet the legal requirements to enter debt review and identifies how much you can realistically afford to repay each month.
2. Proposal: Once your affordability has been established, the debt counsellor prepares a restructured repayment plan. This plan outlines reduced instalments and adjusted interest rates, ensuring your repayments are manageable while covering all creditors fairly.
3. Negotiation: The proposed repayment plan is then shared with your creditors for discussion and approval. During this stage, the counsellor negotiates with each creditor to obtain agreement on the new payment terms and to prevent further collection action.
4. Court Approval: After your creditors agree to the proposal, the arrangement is submitted to court for official approval. Once the court order is granted, your assets such as your home and vehicle become legally protected from repossession, provided you continue to follow the agreed repayment plan.
5. Repayment: You make a single consolidated monthly payment to a registered Payment Distribution Agency (PDA). The PDA then distributes the correct amounts to your creditors according to the court-approved schedule, simplifying the repayment process.
6. Clearance: When all your debts have been fully repaid, you are issued a debt review clearance certificate. This document confirms that you have met your obligations, and your credit record is updated to show that you are no longer under debt review.

When to Choose Debt Review

• If your income can only support a reduced payment plan: Debt review helps you manage smaller, more affordable repayments while avoiding default and maintaining essential living expenses.
• If you are over-indebted and facing legal action: Debt review is suitable for individuals who cannot meet their monthly debt repayments and are at risk of legal steps from creditors. It allows you to restructure your payments under professional guidance.
• If you need immediate creditor protection: Once under debt review, creditors cannot take legal action against you. Your debt counsellor will negotiate reduced instalments, giving you space to regain control of your finances.

What Is A Consolidation Loan?

Debt consolidation refers to the process of taking out a new loan to repay multiple existing debts or financial obligations. In this arrangement, a lender combines all your outstanding debts into a single, larger loan that typically offers improved repayment conditions, such as a lower interest rate, reduced monthly instalments, or both. This approach can include various types of debt, such as credit card balances, student loans, and personal loans, grouped into one manageable amount. By doing this, you are only required to make one monthly payment with a single set of administrative fees, instead of juggling several accounts, each with its own costs and due dates.

Who Are Consolidation Loans For?

A debt consolidation loan is often seen as the first practical step for individuals who want to regain control over their financial situation. It is particularly suitable for those who maintain a good credit record and solid payment history with their existing banks, as this can make approval easier and offer better loan terms. However, individuals who do not qualify through traditional banks can also consider private lenders or specialised financial service providers that focus on debt consolidation.

Lenders are generally open to offering these loans because consolidation improves the chances of repayment. When multiple debts are combined into one, the risk of default decreases, benefiting both the borrower and the creditor. While banks and credit unions remain the most common sources of these loans, many dedicated debt consolidation companies in South Africa provide similar services to help consumers simplify their debt management and work towards financial stability.

What Are The Benefits Of Debt Consolidation?

One of the main advantages of debt consolidation is that it brings together several outstanding debts into a single loan, meaning you only need to deal with one creditor instead of many.

• Simplified repayments: You only need to manage one monthly payment instead of several, making it easier to stay organised and avoid missed due dates.
• Easier budgeting: Knowing the exact amount deducted each month helps you plan your finances better and maintain predictability.
• Lower instalments: Consolidating debt can reduce your monthly payments by spreading them over a longer term, providing extra breathing room in your budget.

When to Choose a Consolidation Loan

• If you want to avoid formal debt review status: A consolidation loan lets you manage your debt independently without the restrictions or legal status associated with debt review.
• If you have manageable debt but need to simplify payments: A consolidation loan combines multiple debts into a single monthly instalment, making it easier to track and manage your finances.
• If you still have a good credit score and stable employment: You are more likely to qualify for a consolidation loan with favourable interest rates and flexible repayment terms.

Comparing Debt Review vs Consolidation Loan

Feature	Debt Review	Consolidation Loan
Eligibility	• Designed for South Africans who are over-indebted, meaning their income is not enough to cover all monthly debt repayments and living expenses. • A registered Debt Counsellor must assess your finances and confirm eligibility under the National Credit Act (NCA). • Once you enter debt review, you cannot apply for new credit until the process is complete.	• Available to South African citizens or permanent residents with a steady income and the ability to service the new loan. • A good credit history is usually required to qualify through banks, though private lenders may also offer options. • Applicants must show sufficient affordability to repay the consolidated loan.
Credit Implications	• Your credit report will display that you are under debt review, which prevents access to new credit during the process. • This does not mean you are blacklisted. The record only shows that your debts are being managed through a regulated process. • Once all debts are paid, you receive a clearance certificate and your credit profile is updated to reflect that you are no longer under review.	• Applying for a consolidation loan results in a hard credit check, which may slightly lower your score initially. • Making consistent payments can improve your credit profile over time by reducing the number of active accounts. • Missing payments or taking on more credit can damage your score further and undo the benefits of consolidation.
Effect On Blacklisting	• Under South African law, formal blacklisting no longer exists, but unpaid accounts can still reflect as negative listings. • While under debt review, you are protected from legal action and new negative listings, as long as you adhere to your repayment plan. • If you had defaults before starting debt review, these will remain on your record until resolved or expired.	• A consolidation loan does not remove existing negative listings or defaults on your credit record. • Failing to repay the new loan can lead to additional negative marks and possible legal action. • If managed responsibly, it can help prevent new defaults and improve your credit stability over time.

Conclusion

Both debt review and debt consolidation offer practical solutions for South Africans dealing with financial strain, but they serve different needs. Debt review is best suited for those who are already over-indebted and require legal protection, while a consolidation loan is ideal for individuals who still qualify for credit and want to simplify their repayments. The key difference lies in accessibility and control: debt review temporarily limits new borrowing but provides structured relief, whereas consolidation loans preserve credit access but demand strict repayment discipline. Choosing the right option depends on your financial position, level of indebtedness, and long-term repayment capability.

Frequently Asked Questions