Is Debt Review and Debt Consolidation the Same Thing?
Debt Review & Debt Consolidation
Is debt review the same thing as debt consolidation?
The quick answer is…maybe.
It really depends on how you understand and use the phrase “debt consolidation”.
Let’s see why.
It Depends
Before we can clearly say whether “debt review” is the same as “debt consolidation”, it is important to explain a few phrases that people often use when talking about debt and debt review.
Let’s have a quick look at: what debt review is, what a consolidation loan is, and then whether debt review and debt consolidation are the same thing.
What is a Debt Review?
Technically, a debt ‘review’ is when a Debt Counsellor, who is registered with the National Credit Regulator (NCR), conducts a full review or evaluation of your finances and debts.
This involves more than just checking your credit report, or asking you a few questions. It is a deep analysis of your finances and debts.
This deep dive is done by looking at bank statements, conducting interviews and asking credit providers for detailed information about all aspects of your debts.
‘many people just use the phrases “debt counselling” or “debt review” or “debt restructuring” interchangeably’
The review by a professional Debt Counsellor will result in one of several outcomes.
- You may have too much debt and not enough income to cover both your needed living expenses and your expected debt repayments. In such case you could qualify for debt review, or investigate things like sequestration.
- You may be able to adjust your spending, to allow you to cover your expected debt repayments each month. In this case, after a consultation and some advice, you could get back on track financially.
- You might also be alright for this month or next, but be headed for problems in the near future. This could also qualify you for debt restructuring via the National Consumer Tribunal, in a special type of debt restructuring.
Please Note: Although that is the “technical” explanation for a debt review or a review of your debt, many people just use the phrases “debt counselling” or “debt review” or “debt restructuring” interchangeably, but they are all talking about the debt restructuring process mentioned in the National Credit Act.
A Debt Review Can Lead to Debt Restructuring
People who have a debt review with help from a Debt Counsellor can be helped to adjust their budget, negotiate with credit providers and even take their matter to court or Tribunal.
The courts can provide someone who has too much debt, a court order that changes their original high debt repayment obligations to something smaller that they can realistically handle each month. As a result of a debt review and help from a court, a consumer’s debt repayments can be restructured.
For example, you may be able to pay off your credit card debt over 60 months. In most cases, credit providers offer consumers in debt review a much lower interest rate, sometimes as low as 0%.
What is a Consolidation Loan?
Are you struggling to pay a lot of different credit providers, i.e. a credit card, a loan, an overdraft and bond or car loan?
Some banks will offer you a loan for you to use to pay off other debts you have. Such loans are meant to be officially registered with the National Credit Regulator as this special type of credit.
If you have lots of smaller debts with multiple credit providers, it can be nice to rather get one big loan and just pay one credit provider, instead of lots of small amounts each month.
‘These types of big loans are what most people mean when they talk about a consolidation loan’
The big loan is used to pay off the small loans, and so all the debts are “consolidated” from multiple credit providers and accounts into one place. These types of big loans are what most people mean when they talk about a consolidation loan.
Hopefully, if you have such a loan, you will be able to get a decent interest rate on the loan. Be sure to do the math, and make sure that you will actually save by consolidating all your payments into one big loan. High interest-rate loans are to be avoided, if at all possible.
What Do People Mean When they say Debt Consolidation?
When you see an advert that offers to consolidate your debts into a single payment, you may assume it is a new big loan (a consolidation loan).
That could be the case, but there is another way to consolidate debt repayments, and that is through the debt review process.
During debt review (the debt restructuring process we spoke about earlier) arrangements are made to pay less to your credit providers each month…but probably for a slightly longer time period. It’s cheaper each month, but takes longer, that’s the trade-off.
Since most people who enter debt review make use of a payment distribution agent or PDA, they are able to make one global payment toward all of their debts each month. This one big payment is split up into smaller payments by the Payment Distribution Agent each month and sent to the right accounts, with the right reference numbers and at the right time.
So, you as the consumer, make one big payment and it is much simpler to manage. You don’t have to worry about missing any accounts or paying the wrong amount on the wrong day or using the wrong reference number.
Because you only make one payment, it could be said that the many different payments you made before are now consolidated into one monthly debt repayment.
This is then done without taking on more debt. Rather, it is part of the debt review process.
So, the repayment part is consolidated and not the actual loans. Those still run in separate places, but the repayment side of things is handled by the PDA while you only make a single easy payment each month.
It’s a small difference but there is a difference.
Are Debt Review and Debt Consolidation the Same Thing?
So, then let’s get back to the original question:
Are debt review and debt consolidation the same thing?
It depends.
Although there are small technical differences, you might be able to go from paying lots of different credit providers different amounts, at different interest rates to just making one easy payment a month.
That could be via a consolidation loan from a credit provider, or you could consolidate your repayments through the debt review process.
One way involves taking on new debt (hopefully at a good rate) and the other involves getting a court order to adjust how you repay your debts.
