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Both debt consolidation and debt counselling can be used to help you get out of debt. But they do so in very different ways, and the best solution for you will depend largely on how deep in debt you are and what options are available to you.

Debt consolidation works by pulling all your debt (credit cards accounts, store accounts, personal loans, and payday loans into a single loan. Usually this debt consolidation loan will have a longer loan term, which brings monthly installments down, making them more affordable. This a good option if you are struggling to make minimum payments and just want a little breathing room (a lower monthly instalments), but it requires you to have a credit score still good enough to qualify you for a debt consolidation loan.

If you’re seriously deep in debt and have been missing payments for some time already, your credit score might already be too low to qualify you for a debt consolidation loan. In this case, debt counselling might be your only option. Taking this route would mean enlisting the help of a debt counsellor, who would assess your debt and then help you restructure it in a way that made repayments manageable.

When to consolidate your debt

Debt consolidation is a good option if you are struggling to make minimum payments and just want a little breathing room - lower monthly instalments. But this solution requires you to have a credit score good enough to qualify for a debt consolidation loan. And, like debt counselling, debt consolidation will cost you. The lower monthly instalments achieved by debt consolidation are only possible because your loan term is extended. This increases the period over which you pay interest and makes your debt more costly. So you should only ever extend your loan period as much as is needed.

When to get debt counselling

If you are seriously deep in debt and have been missing payments for some time already, your credit score might already be too low to qualify you for a debt consolidation loan. In this case, debt counselling may be your only option. To qualify for debt counselling, your debt first needs to be assessed, and you need to be deemed over-indebted. Once it’s obvious that you need help with your debt, you’ll meet with a debt counsellor to draw up a budget designed around a new repayment plan that both you and your creditors will have to stick to. Debt review is a legal process, and in this step the contract makes the new payment plan binding. This protects you from potential increases in monthly instalments and commits you to meeting the new repayment plan.

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