DebtBusters logo
DebtBusters green overlay

Articles Debt Counselling

Another loan vs. debt counselling

20 June 2023

What happens when you can no longer afford to make your debt repayments? It’s a tough predicament to be in. Unfortunately, it is a spot many South Africans find themselves in.

Most often, people think that the only way to pay off these debts is by taking another loan out to cover it. However, this is actually not a very effective path because essentially, the consumer is only getting themselves further into debt.

There is a better solution out there - Debt Counselling.

In this article, we’ll compare the two debt solutions and tell you everything you need to know, so that you can make informed financial decisions.

Deciding between a loan and debt counselling

Picture this: A consumer has debts piling up - credit cards, overdrafts, store accounts, and home and car loans. In the economy, there is inflation and a rising cost of living making day to day expenses more costly. They have children to send to school, meaning school fees. Travel costs, food costs, and everything in between. Things are getting too much and the consumer starts to default on their payments. Creditors start calling because they want their money, banks are threatening to repossess their car if they don’t make payments.

This person is deeply financially stressed. But they are aware they have two options: another loan or Debt Counselling.

Which one should they go with? This is the decision many South Africans have to make.

What is a debt consolidation loan?

Debt Consolidation loans are a tricky subject - because it means different things to different people.

At DebtBusters, we do debt consolidation, but do not include a loan. We add together all your debts, restructure it, and negotiate the payment terms. So you only have to make one payment per month toward all your debts.

Whereas other financial institutions collate all your debt so that you can have one payment per month, but they add interest on top of it. This is what makes it a loan.

How to decide what to do when you are struggling financially

Here are some things consumers should think about - and to do - before making their final debt solution choice.

  1. Seek financial advice

Speak to financial experts about what your options are and what makes most sense for you, in your individual circumstances. DebtBusters gives you a free assessment - all you have to do is fill in the call back form.

  1. Conduct a cost analysis of a loan vs debt counselling

It’s important to know that a loan will come with very high interest rates. On the other hand, debt counselling comes with initial, once-off costs like restructure fees. Consumers should do research on these fees to see which works out less.

  1. Find out if you are eligible for debt counselling

To qualify for debt counselling, a consumer must be over-indebted. In other words, the total sum of their monthly debt repayments must be higher than their monthly income.

Need debt counselling or consolidation?

Explore DebtBusters' solutions for reducing your interest rates and unlocking cash.

Find out more

What can happen if you take out another loan?

Unfortunately, the truth is that this will lead to an even worse off financial situation.

The more loans taken out, the more money that is owed and the more interest and fees there will be. This means a consumer will be deeper in debt and it will be harder to get out of it. There will be more creditors on their backs, and their valuables may be repossessed if they do not pay up in time. Consumers may even be summoned to court.

What happens when you go into debt counselling?

When you get in contact with a debt counsellor, they will assess your financial situation. From there, they will draw up a budget, and suggest a new structure for your monthly payments. Then:

  1. Your existing debt is restructured to a single, affordable amount and you will be working towards becoming debt free by paying this restructured instalment each month.
  2. A debt counsellor will negotiate lower interest rates and extended payment terms with your creditors, and will also ensure that you receive legal protection.
  3. Going under debt counselling will allow you to be fully committed and focused on paying off your debt and becoming debt free.

The process also frees up enough disposable income to cover your living expenses, meaning there is no need to take out more credit to assist with cash flow.

The benefits of going into debt counselling:

  • Your debt counsellor will negotiate lower interest rates and fees on your debt with your various credit providers, on your behalf.
  • They will also request that the payment terms be extended. This means that you will pay a combined, lower monthly instalment and have enough disposable income to cover your living expenses.
  • Under debt counselling, you will also be provided with legal protection from your creditors. This means that you will no longer receive unpleasant calls from your creditors as your debt counsellor will handle all formal communication with your credit providers.
  • As part of the legal protection you will receive, your assets will be protected from repossession, meaning that you will no longer have to worry about losing your house or vehicle.
  • Going through the process also teaches you a lot about money and finances. In the end, you’ll have gathered a good amount of financial education that you can use going forward.

What else do you need to know about debt counselling

You will not be allowed to apply for new credit, meaning that you will no longer be at risk of getting into deeper debt, and can fully focus on becoming debt free.

Completing the debt counselling process

Once you have paid up all your debt obligations, you will receive a clearance certificate stating that you are officially debt free. Your credit record will be cleared and you will have the opportunity to start afresh and build up a healthy credit score.

For more info, email us on or phone 086 999 0606.

Share on...

WhatsApp Whatsapp Facebook Facebook Twitter Twitter LinkedIn LinkedIn mail Email
Contact Us

5th Floor, 11 Adderley Street, Cape Town, 8001

Operating Hours:

Mon-Thu: 07:00 - 21:00
Fri: 07:00 - 18:00
Sat: 09:00 - 12:30

Call our experts now on 0861 365 910 Registered debt counsellor NCRDC1801 NCRDC2374 A member of the National Debt Counsellors Association