DEBT CONSOLIDATION

DEBT CONSOLIDATION

WHAT IS DEBT CONSOLIDATION?

Debt consolidation involves obtaining a new, larger loan to repay multiple smaller loans. The objective of debt consolidation is to combine all your various loans or credit card payments into a single payment. This may result in a lower or higher interest rate, depending on your credit score. The key point is that debt consolidation is advantageous when it results in a lower interest rate and a shorter repayment term than you previously had. However, a lower interest rate is not always guaranteed when consolidating.

Before applying for a debt consolidation loan, it is crucial to understand several important factors. Most notably, debt consolidation may not be suitable for everyone.

WHEN SHOULD YOU AVOID CONSIDERING A DEBT CONSOLIDATION LOAN?

  • You cannot afford the new loan payments until the loan is fully repaid.
  • You do not use the loan to clear all your debts but instead allocate it for other purposes.
  • Your new net interest rate is higher than your current net interest rate.
  • You end up paying more in total due to higher monthly repayments or a longer term of the agreement.
  • The cost of consolidation includes high-interest rates, a one-time initiation fee, monthly administrative fees, service charges, and more.
  • When you require assistance in managing your debts rather than taking out a new loan, our debt counsellors can negotiate with your creditors and arrange a manageable repayment plan.
  • The debt consolidation loan does not adequately address your day-to-day cash flow needs.

Your financial behavior remains unchanged.

Pay attention: Often, after individuals consolidate their debt, it tends to accumulate again. The reason is that they lack a strategic plan to pay with cash and reduce spending. In other words, they have not developed sound financial habits to remain debt-free and build wealth. Without a change in behavior, it is highly probable that they will fall back into debt.

WHY DEBT CONSOLIDATION WITHOUT OBTAINING A NEW LOAN IS A PREFERABLE OPTION?

When obtaining a debt consolidation loan is not a viable option, our debt counsellors will negotiate with your creditors and arrange a manageable repayment plan on your behalf. Debt review provides the following benefits:

  • Regular action plans, tips, and articles shared with our clients aimed at changing their financial behavior;
  • Consolidating all your debts into one, without the necessity of obtaining a larger loan;
  • Ensuring all household expenses are covered, as a debt consolidation loan typically does not fully address day-to-day cash flow needs;
  • Potentially reducing interest rates, even to as low as zero, which is highly unlikely with an unsecured debt consolidation loan that may attract a high-interest rate.

To learn more about debt counselling, visit our debt counselling page.

What varieties of debt consolidation loans are available?

There are two types of debt consolidation loans:

Secured – where the borrowed amount is collateralized by an asset, such as your home. However, failure to make repayments could result in the loss of the collateral.

Unsecured – where the loan is not collateralized by your home or other assets. An example of this would be a personal loan.

Determine whether you qualify for debt consolidation without obtaining a new loan.

The table below summarizes the key differences between debt consolidation loans and debt review. However, it is important to note that debt consolidation often promises one outcome but delivers another. Therefore, it is advisable to consider a debt review plan, which is more effective in helping you eliminate debt swiftly.

Debt Consolidation

Debt Review


  • Consolidates all your debts into one, requiring the acquisition of a larger loan
  • There is no legal protection of assets, as there is no court order in place. If it is a secured debt consolidation loan against your home, you risk losing your home if you miss repayments.
  • The larger loan granted to repay the smaller loans is limited.
  • One of the prerequisites for loan qualification is maintaining a good credit score
  • It is logical to opt for a consolidation loan when the interest rate is lower than the rate previously paid.
  • Lower Monthly Installment
  • Household expenses are typically not included
  • Debt consolidation doesn’t mean debt elimination
  • Consolidates all your debts into one, without necessitating the acquisition of a larger loan
  • Your assets are legally protected under debt review through a court order.
  • The amount of debt included under debt review is unlimited.
  •  Conversely, credit scores are not a requirement for eligibility in debt review
  • Interest rates are reduced, and the overall debt amount decreases
  • Lower Monthly Installment
  • All household expenses are accounted for under the repayment plan, with the remaining balance directed towards debt repayment.
  • The fact that you cannot borrow while under debt review means that you are eliminating debt when you pay your debt.

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