Buried under debt? When to get counselling, and when to consolidate

When to consolidate your debt

Debt consolidation is a good option if you are struggling to make minimum payments and just want a little breathing room because it results in lower monthly instalments.

But this solution requires you to have a credit score good enough to qualify for a debt consolidation loan. And it will cost you.

The lower monthly instalments are only possible because your loan term is extended. This increases the period over which you pay interest and makes your debt more costly.

When to get debt counselling

If you are deep in debt and have been missing payments for some time, your credit score might be too low to qualify you for a debt consolidation loan. In this case, debt counselling may be your only option.

To qualify, your debt needs to be assessed and you need to be deemed over-indebted.

Once it’s obvious you need help with your debt, you’ll meet with a debt counsellor to draw up a budget designed around a new repayment plan that both you and your creditors will have to stick to.

Debt review is a legal process, and in this step the contract makes the new payment plan binding.

This protects you from potential increases in monthly instalments and commits you to meeting the new repayment plan.

Smith is chief operations officer at Old Mutual Finance

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