Should You Use Another Loan or Go for Debt Counselling?

There are many of us in South Africa that try to solve our debt problems by getting more debt. However, if you are not able to afford one loan, is it really the best idea to take out another loan in order to cover the first?

This will lead you to further debt and put you into a worse financial position. Fact is that the more loans you take out, the more money you will owe and the more interest and fees you will need to pay.


If you are struggling with your debt repayments then taking on further debt will only make the situation worse as your debt will accumulate and as your situation spirals out of control, creditors may choose to take legal action against you.

Another solution to your debt problems could be debt counselling where your debt is consolidated into one and you will not need to take another loan. Your debt is restructured into just one affordable repayment and as you pay this monthly amount, you will be working towards becoming debt free.

A debt counsellor has the ability to negotiate for lower interest rates and longer loan periods as well as offering you legal protection. With debt counselling, you are able to focus on becoming debt free and as you will be paying one lower monthly repayment you will be able to release more cash flow so that you can cover your monthly living expenses without having to resort to credit.

What Are the Main Benefits of Debt Counselling?

The first major benefit of debt counselling is that a debt counsellor will negotiate with your creditors on your behalf and get you a lower interest rate on your debt. They will also ask that the payment terms are extended. For you, this means that you will pay a combined, lower monthly repayment and free up some disposable income.

With debt counselling, you will receive legal protection from your creditors.  Creditors will no longer be able to call you and they will need to go through your debt counsellor. On top of this, your assets will also be protected from repossession, so you will not have to worry about losing your home or car.

As part of debt counselling, you will not be able to apply for new credit, so you will not be able to drive yourself deeper into debt. You can just focus on becoming debt free.

Keep reading to find out once you are debt free with debt counselling…

What Happens After Debt Counselling?

So you have come to the end of your debt counselling journey, so what happens next?

debt free

Once all the paid up letters have been received from your credit providers, you will receive a clearance certificate from your debt counsellor. This letter will confirm that you have settled all your listed accounts under the debt counselling agreement and that all your accounts are paid. This doesn’t include your home loan, which will just need to be up to date with payments.

The credit bureaus will also receive the certificate from your debt counsellor and they will no longer flag you as being under debt counselling.

As soon as your debt counsellor issues your clearance certificate, you are able to apply for credit again. The status of being under debt counselling will no longer have a negative impact on how credit providers perceive you. Instead, they may actually view you as a responsible consumer that understood they were over-indebted and acted accordingly.

However, before you take on any new credit, you should set up a realistic budget and have a financial plan in place. Your debt counsellor or a financial advisor will assist you with a budget and a plan for your future.

So, what happened to your credit score? After debt counselling, your credit score will be low, but you are able to rebuild this by making sure that you pay your accounts on time. You should make sure that any phone contracts, TV subscriptions etc. are paid and up to date.

Once you have completed debt counselling, get a copy of your credit report and see if it is updated. If not, then inform the bureau so that any mistakes can be fixed.

If you ever feel that you are over-indebted, then you can apply for debt counselling. With debt counselling, you can become debt free and get your financial future back on track.