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Debt consolidation – who is it for and how does it work?


Debt consolidation – who is it for and how does it work?

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Debt consolidation is a process of reconciling all debts into one debt.

This could be an option for you if you feel overwhelmed with excessive debts or with many interest rate payments from different accounts. This is the best way to minimise the risk and restructure the debts into one affordable monthly payment.

There are two methods of consolidating debts:

1. You can get a new loan that settles all existing debts. Then you focus on repaying the new loan over an extended period at an affordable rate.

The qualifying criteria for this option are like those of a loan application. You must have a very good credit standing. That means you must not be in arrears and must be up-to-date with all current payments. Also, you must not be over-indebted. That is, you must not have more than 40-50% of your monthly income committed towards current debt repayments.

With a good credit rating and affordability, you will qualify for a much lower interest rate on the new loan. This will make the repayment very affordable. Furthermore, this repayment will be less than all the previous debt repayments combined. This is because the terms of the new loan will be extended, thus reducing the repayment amount too.

This loan is called debt consolidation.

2. You can apply for the debt counselling process. The debt counselling process is also known as the debt review process.

This process is not about getting a new loan. This process entails finding a good and reputable debt management/debt counselling company. They will then combine your total monthly debt repayments into one monthly payment.

These companies negotiate with all your creditors for reduced interest rates and extended repayment terms – generally of 60 months maximum.

This is a solution if you are over-indebted or overcommitted. That is, more than 50% of your income goes towards debt each month. This solution is for CONSUMERS WHO ARE OVER-INDEBTED. As such consumers can not qualify for the first option which is getting a new loan


  • While under debt counselling, your creditors (people and companies you owe) cannot attach your assets.
  • Creditors will not call you for payment.
  • You only have one payment to worry about.
  • You don’t get a permanent record indicating that you went through debt counselling.


There are restrictions that are placed on you if you go through the debt counselling route. It is important to get your debt counsellor to explain these in detail. These include the fact that you cannot open additional accounts while undergoing debt counselling.

For example, you will not be able to open a Dstv account or take out a cellphone contract.

You may also take longer to pay off your debts since repayments are extended over a longer time. You will also have to pay a fee for debt counselling. The fee is included in your repayments.

In conclusion, it is important to be wise about managing your debt. If you’ve faltered then debt consolidation or debt counselling might help you get back on your feet. Both of these processes can be unpleasant so avoid having to go this route as much as you can!

PLUS, we'll send you our Zonotho Personal Finance Starter pack to help you take your financial prowess to the next level!



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Rabbi Kasongo

Rabbi Kasongo works as a Qualified Senior Debt Expert at South Africa's Largest Debt Management Company. Having obtained a Honours Degree in financial management with the University of Pretoria, he has a strong passion for empowering others and providing financial advice as well as educational tools to different communities on topics related to the credit industry.

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