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

They are not two versions of the same thing

Debt review is a statutory process. You apply under section 86(1) of the National Credit Act, a registered debt counsellor assesses you, and a Magistrate's Court makes an order re-arranging your obligations. The court order is the product.

Debt consolidation is a loan. You borrow money, use it to settle several debts, and then owe the new lender. There is no statute governing it as a process, no assessment of over-indebtedness, no court, and no supervision of the terms beyond the ordinary provisions of the Act that apply to any credit agreement.

The National Credit Act mentions consolidation only in one narrow sense: section 88(1) makes a consolidation agreement the single kind of new credit agreement a consumer who has applied for debt review is still permitted to enter into.

The protection gap is the whole decision

Under debt review, section 88(3) prevents a credit provider that has received notice of your application from enforcing by litigation or other judicial process until you are in default and a defined event has occurred. That is a legal shield against summonses, judgments and attachment.

A consolidation loan gives you none of that. If you fall behind on it, the lender enforces like any other credit provider. You have swapped several obligations for one, but you have not acquired any protection, and you have often secured the new loan against something you own.

Against that, debt review carries the section 88(1) restriction: no new credit for the duration, and a credit bureau record while it runs. Consolidation leaves you free to take further credit, which is either an advantage or precisely how people end up worse off than when they started.

When consolidation is genuinely the better answer

• You are not over-indebted. You can meet all your obligations, but they are spread across expensive short-term credit and one cheaper loan would reduce the total interest.
• You can access a materially lower interest rate than the debts you are settling. If the consolidation rate is not clearly lower, the exercise mostly moves the problem.
• Your income is stable and the shortfall is structural rather than a cash-flow squeeze.
• You have the discipline not to re-use the accounts you have just settled. This is where most consolidation fails in practice.

When debt review is the better answer

• You cannot meet all your obligations in a timely manner - the section 79 test. Consolidation does not fix an affordability problem, it re-dates it.
• Credit providers are already threatening legal action, and you need the section 88(3) protection.
• You would not qualify for a consolidation loan at a sensible rate anyway, which is common by the time people start looking.
• You need someone with a statutory duty to you, rather than a lender selling you a product. Section 86(3)(b) forbids a debt counsellor from taking a fee from your credit providers.

Our side-by-side tool runs your own numbers through both: /tools/debt-review/consolidation-vs-debt-review

One warning about the sales pitch

Consolidation is a product with a sales commission attached. Debt review is a regulated process where the practitioner may not be paid by your creditors. That difference in incentive is worth holding in mind when someone is very enthusiastic about which one you need.

If a consolidation lender tells you that debt review will ruin your credit record forever, they are overstating it: section 71(5) requires the bureaux to expunge the debt review record and the defaults that led to it once you have your clearance certificate. If a debt counsellor tells you consolidation is always a trap, that is also overstated. Both are tools.

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