Debt Review vs. Consolidation: Knowing Your Options

There is a specific kind of insomnia that comes with too much debt. It is the 2 a.m. stare-at-the-ceiling panic when you realize that payday is still two weeks away, but your bank account is already empty. In South Africa, where the cost of living seems to rise faster than the sun, millions of us are trapped in the cycle of “robbing Peter to pay Paul.”

When the calls from unknown numbers start coming in—the ones you are too scared to answer—you know you need a lifeline. Usually, you will hear two terms thrown around: Debt Consolidation and Debt Review.

They sound similar. They both promise to lower your monthly payments. But choosing the wrong one can be a financial disaster that sets you back by five years.

I’m Nolan, and I am here to help you breathe again. I am going to explain the critical battle of Debt Review vs. Consolidation, strip away the jargon, and help you decide which path will actually get you to financial freedom without ruining your future.

The Reality Check: You Are Not Alone

Before we dive into the technicalities, let’s look at the stats. According to the National Credit Regulator (NCR), nearly half of all credit-active South Africans are in arrears or struggling to pay their bills. This isn’t a “you” problem; it’s a systemic problem.

However, the solution is personal. Your neighbour might have used a consolidation loan successfully, while your cousin needed debt review to save his house. Let’s unpack why.

Option 1: Debt Consolidation (The “Clean Sweep”)

Debt Consolidation is simply taking out one large new loan to pay off all your smaller, existing debts.

How It Works

Imagine you have:

• Credit Card: R20,000 (at 21% interest)
• Personal Loan: R30,000 (at 24% interest)
• Store Cards (Edgars/Truworths): R10,000 (at 22% interest)
• Total Debt: R60,000.

You go to a bank (like Capitec, African Bank, or FNB) and ask for a R60,000 Consolidation Loan. They pay off the other three creditors. Now, you only owe the bank R60,000.

The Good News

• Simplicity: You move from paying 5 different people to paying 1.
• Cash Flow: By extending the term (e.g., over 5 years), your monthly instalment drops.
• Credit Score Protection: Because you are paying off the old accounts “in full,” your credit score actually looks good (provided you don’t miss payments on the new loan).

The Bad News (The Catch)

• You Need Good Credit: This is the kicker. To get a consolidation loan, you need to qualify for it. If you have already missed payments or your score is trash, the bank will say no.
• The “Double Dip” Trap: This is dangerous. You pay off your credit card with the loan. But you don’t close the credit card. Two months later, you max out the card again. Now you have the big loan AND the credit card debt. I have seen this bankrupt people.

Option 2: Debt Review (The “Shield”)

Debt Review (also called Debt Counselling) is a formal legal process introduced by the National Credit Act to protect consumers who are “over-indebted.”

How It Works

You hire a registered Debt Counsellor. They assess your income and expenses. If they declare you over-indebted, they take over your finances.

1. They negotiate with your creditors to reduce interest rates (sometimes from 25% down to 0% or 5%).
2. They extend the payment terms.
3. They get a Court Order to make this agreement legally binding.
4. You pay one reduced monthly amount to a “Payment Distribution Agency” (PDA), which splits the money for you.

The Good News

• Asset Protection: Once you are under Debt Review, creditors legally cannot repossess your car or house (provided you haven’t already received a Section 129 summons). It stops the legal action instantly.
• Affordability: It is the only option that forces creditors to accept less money per month based on what you can actually afford, not what they want.

The Bad News (The Catch)

• Total Credit Freeze: You are flagged at the Credit Bureaus. You cannot use your credit cards, and you cannot apply for any new credit (not even a Woolies account) until you are paid up.
• The Flag Sticks: You remain under debt review until all short-term debt is paid off. You cannot just “cancel” it because you won the lotto or got a raise. It requires a court process to exit early.

Comparison Table: Debt Review vs. Consolidation

When Should You Choose Which?

This is the most important part of mastering personal finance in SA—knowing which tool fits your specific crisis.

Choose Consolidation If:

1. You are Solvent: You can afford your debt, but you just want to simplify your life.
2. Your Credit Score is Healthy: You haven’t missed payments yet.
3. You are Disciplined: You are willing to close those store accounts the day you pay them off.

Choose Debt Review If:

1. You are Drowning: You literally cannot pay for food and your debt at the same time.
2. You are facing Repossession: The bank is threatening to take your car.
3. You have “Bad” Debt: High-interest unsecured loans that will take 20 years to pay off at the current rate.
4. You need a “Financial Rehab”: You need to be forced to live on cash for a few years to reset your habits.

The Debt Review “Removal” Scam

I must warn you about this because it is rampant on Facebook and TikTok.

You will see ads saying: “We remove Debt Review flags in 24 hours! No Court Order needed!”

This is a scam.

Under the National Credit Act, the only way to leave Debt Review is:

1. To pay off all short-term debt and receive a Clearance Certificate (Form 19) from your Counsellor.
2. To get a High Court Order declaring you are no longer over-indebted (which is expensive and difficult).

Anyone promising to “unflag” you for R2,000 is stealing your money and leaving you in legal limbo. Always verify your Debt Counsellor on the NCR Debt Help database before signing anything.

Case Study: The Tale of Two Debts

Sipho (The Consolidator)

Sipho earned R25,000. He had R40,000 in store card debt. His score was 680.

• He took a consolidation loan from his bank at 18%.
• He paid off the store cards and closed them.
• Result: He saved R1,500 a month in cash flow and was debt-free in 3 years.

Thandi (The Debt Review Candidate)

Thandi earned R25,000. She had R150,000 in unsecured loans and a car finance agreement. Her score was 450. She was skipping meals to pay the car.

• She applied for consolidation but was declined (high risk).
• She went into Debt Review. Her interest rates were slashed from 24% to 8%. Her car term was extended.
• Result: Her monthly repayment dropped by R4,000. She kept her car. It took her 5 years to clear the debt, but she survived with her assets intact.

Nolan’s Final Verdict: Don’t Wait Until It’s Too Late

The biggest mistake people make with Debt Review vs. Consolidation is waiting.

They wait until they have missed 3 car payments. By then, consolidation is off the table because their score is ruined, and Debt Review might be too late to stop the repo man if legal action has started (Section 129).

Action Step:

1. Check your credit score today (ClearScore/TransUnion).
2. If it’s good (>650), try for a consolidation loan now while you still qualify.
3. If it’s bad (<600) and you are struggling, call a Debt Counsellor immediately.

There is no shame in asking for help. The only shame is letting your pride cost you your financial future.

FAQ: Debt Review and Consolidation

Does Debt Review permanently ruin my name?

No. Once you receive your Clearance Certificate (Form 19), the Debt Counsellor notifies the bureaus. The “flag” is removed within roughly 5-10 business days. You effectively start with a clean slate, and you can apply for credit again (even a bond) immediately, though you will need to rebuild your score from scratch.

Can I rent a flat while under Debt Review?

Yes. Landlords check your credit report. They will see the flag, but many are understanding if you can prove affordability (payslips/bank statements). However, estate agents dealing with strict automated systems might decline you.

Can I sell my house while under Debt Review?

Yes, but the proceeds of the sale must go towards settling your debt. You cannot sell the house and pocket the cash while owing creditors. Your Debt Counsellor will manage this process.