Is Debt Counselling the same as Debt Consolidation?

Both debt counselling and debt consolidation are financial strategies to help relieve debt repayment stress, but they are not the same. Debt consolidation reduces the number of creditors by merging all the debt into a single loan. This does allow a single monthly payment to be introduced but unless the interest rate can be reduced and the period of the loan lengthened there is little other benefit. Also there is always the temptation for the client to go and start borrowing and spending again as this is not controlled and this just results in an even worse debt exposure situation developing.

Debt counselling does not replace or reduce the existing debt with a new loan, but is a programme that allows a consumer to continue to maintain themselves and their families via an agreed living expenses budget, while still repaying all their debt at a level that they can afford. The client also has the full protection of the law provided via the National Credit Act and the oversight of the Counsellor. The Debt Counsellor is not only able to reduce the monthly debt repayments by up to 60% but also has the ability to reduce the debt interest rates significantly in negotiation with the creditors.

Debt Counselling

Advantages of Debt Counselling:

  • An agreed living expenses budget put in place so that the client and their family can continue to maintain themselves and live reasonably.

  • Reduction of monthly debt repayments levels by up to 60% with the full debt amounts being ultimately repaid.

  • Interest rates may be renegotiated and reduced

  • Creditor harassment ceases

  • Legal protection from creditors

  • Plan creates wise spending habits and getting used to living on a “cash” only basis. Debit card rather than Credit card used

  • Fee structure does not require additional monies to be found to pay them. Part of the programme structure.

  • Once all debt has been repaid a clearance certificate is issued and all listings and data on the Credit Bureaus are expunged and the client starts with a clean credit profile slate


Disadvantages of Debt Counselling:

  • The client may not access additional debt while under the programme

  • Clients undersgoing debt counselling cannot cancel the contract without all creditors agreement, a Court Order or all debt and Counsellor Fees having been repaid


Debt consolidation 

What is debt consolidation?

  • Debt consolidation is basically amalgamating all a client’s debt into a single loan with a single monthly repayment amount being calculated. While debt counselling works to prevent a re-occurrence of the debt dilemma the debt consolidation structure allows the client to continue spending and borrowing thereby possibly worsening the situation.

  • Debt consolidation may reduce monthly repayments dependent upon what interest rate and period of the consolidated loan is negotiated and agreed to.

Advantages of debt consolidation

  • Consolidation of all existing debt into a new loan with a single monthly repayment amount. 

  • Possible reduction of interest rate and lengthening of loan period. Normally done via an existing Bond

Disadvantages of debt consolidation

  • No additional legal protection from creditor

  • Allows debtor to continue to spend and borrow thereby possibly aggravating their financial situation. This is especially so if there is an perceived or real improvement in monthly cash flow as a result of an reduced interest rate and a lengthened loan period. Temptation always will win out!

Administration of debt consolidation

When clients decide to approach Administrators for assistance the Courts are approached for an Order to allow the administrator to take over the financial life of the client. It has been our experience that once under administration the client seems locked in to the administrator who may or may not be paying the creditors. It appears that few statements as to what the status of the matter is are issued regularly and which creditors are being paid what amount, when and what the balances are. We have come across cases where the clients have been under administration for many years and have never received any communication as to the status and balances of the debt.

It is recommended that clients take advice before going into administration.
Should any client be unhappy with their administrator Killaghy Debt Counsellors would be happy to investigate and arrange for the termination of the Administration Order.

Rights and responsibilities for clients undergoing debt counselling


* The client has the right to have the debt review structure and pros and cons fully explained to them. This will include that once the contract between the client and the Counsellor has been signed that the debt review remains in place until the debt covered by the review has been fully repaid, Nil paid letters are received from all the creditors and the Clearance Certificate issued by the debt counsellor to all creditors and the Bureaus.

* Should the Counsellor not implement the debt review as per the National Credit Act the client may reclaim all fees paid to the Counsellor.

* Should a client not be happy with the performance of a counsellor they may opt to transfer the debt review to another counsellor subject to all agreed fees having been paid to the first counsellor.


* The client must all times provide the Counsellor with all relevant information requested.

* The client should at all times carry out the legal instructions requested by the counsellor.

* The client must pay all fees due as agreed.

* The client may not terminate the debt review.


Killaghy Business Solutions are Registered Debt Counsellors


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