What are Debt Consolidation Loans?

If you’re over-indebted and juggling multiple debts, a consolidation loan from a debt consolidation company might seem like the ideal solution. However, these loans often come with high interest rates and administrative fees.

Wondering if a debt consolidation loan is the right choice? Let’s look at a simple example:

1. Alex is in debt

Alex is under pressure. Most of his salary is going towards debt repayments, and he’s struggling to make ends meet. He owes a total of R200,000. With an average interest rate of 22%, his total repayment over time could reach R339,120. Right now, Alex is paying R7,065 every month.

2. Alex looks into a debt consolidation loan

He hears about consolidation loans and sees that many registered credit providers in South Africa offer loans up to R300,000. By stretching the repayment term, Alex hopes to lower his monthly instalments.

3. He considers his loan repayment terms

He can pay back the loan over the repayment term of 72 months (6 years) at a yearly interest rate of 18%. To obtain the loan, he needs to pay a once-off initiation fee of R1,207 as well as an ongoing monthly service fee of R69.

4. What his new repayment would be

Based on those terms, Alex’s new monthly repayment would be about R5,432. That’s a saving of R1,632 every month compared to what he currently pays.

5. The real cost of the consolidation loan

But over 7 years, including interest and fees, Alex ends up paying around R391,157.28 in total — for a loan of only R200,000.That’s an additional R191,157 in long-term debt.

Conclusion?

He may have saved approximately R1632 p/m in repayments, but he increased his long term capital debt by

R191,157

Is Debt Counselling A Better Option?

Still looking for a way out, Alex discovers debt counselling, also known as debt review.

This is a regulated process overseen by the National Credit Regulator (NCR) to help over-indebted consumers. Companies like Debt Rescue negotiate lower instalments with creditors while offering legal protection and financial structure.

In Alex’s case:

He still owed R200,000
Was paying R7,065/month, which he couldn’t maintain
After entering debt counselling, his monthly instalment was reduced to R3,600
His plan allowed him to cover essential living expenses, while repaying his debt in full
With occasional extra payments, he managed to pay off his debt faster

Unlike a consolidation loan, Alex didn’t take on new credit. He paid off the entire amount owed, improved his credit profile, and found a real path to financial recovery.

Debt counselling isn’t more debt — it’s a structured solution to finally become debt-free.