The Pros and Cons of Debt Mediation
Debt mediation is a process, which is intended to help the consumer, who are experiencing cash flow problems, to help repay their debt with an arrangement that is affordable to them. These arrangements are generally also intended to be acceptable to the creditor and are made on the consumer’s behalf.
Regarding a repayment method, the debt mediation company will provide a proper repayment plan that contains a new installment plan, which ensures each creditor gets repaid accordingly. Payments may be made directly to creditors, or one will be assigned to a Payment Distribution Agency, which will collect the payments from you, to repay your creditors accordingly.
Just like anything else, debt mediation has many benefits, along with disadvantages. Even though it solves a problem, it might also create some road bumps along the way.
The pros of debt mediation
- Unless you’re already blacklisted, you’ll be protected from being listed.
- An alternative arrangement for each of your credit providers will be made to lower your installments.
- Legal action, such as repossession of assets, will be prevented where able.
- If you are over-indebted, you can take your case to the high court and apply industry restructuring rules, which if applied properly, will force credit providers to immediately accept the proposal you present them with.
- The opportunity of having your financial position improved.
- You will receive an agreed, more realistic and affordable budget, to resolve your financial situation and shortcomings in the shortest period possible.
The cons of debt mediation
- Choosing to opt for debt mediation, might compromise your common law rights, as well as your statutory rights, due to it not being regulated by South Africa’s National Credit Regulator.
- The debt mediation sector has been problematic since 2012, when the NCA was forced to stop voluntary debt mediation services, due to conflict of interests.
- Debt mediation doesn’t cap debt interest, that may accumulate for years, where debt counseling does allow for an interest cap, which is just one reason why debt counseling is far better than debt mediation.
- Debt mediation may only deal with a single credit provider at a time, which is why the process of debt mediation is so time-consuming.
- It affects your credit score negatively.