The Pros and Cons of Debt Mediation

Cons

 

  • In 2012 the National Debt Mediation Association (NDMA) was instructed to stop its voluntary debt mediation service (VDMS) because of conflicts of interest and contraventions of the National Credit Act (NCA). Therefore, unofficial debt mediation has been problematic from the outset.
  • Opting for debt mediation may compromise your statutory and common law rights as it is not regulated by the National Credit Regulator, whose purpose it is to uphold consumer fairness and justice.
  • It is potentially detrimental to debtors under financial stress, as debt mediation does not afford the debtor protection from legal action, as debt counselling does under the NCA.
  • Debt mediation does not allow the debtor to benefit from the in duplum rule, which holds that credit providers may not claim unpaid interest from the debtor in excess of the outstanding amount that they owe the credit provider. This rule provides relief to many people in desperate financial situations, but is only available to those under official debt counselling.
  • Debt mediation does not put a cap on debt interest that may have been racking up for years, whereas debt counselling allows for a debt interest cap.
  • You risk a conflict of interest if you use your credit providers own debt mediators, as it’s not their duty to uphold your rights and they may be more interested in getting money out of you.
  • Debt mediation only deals with one credit provider at a time so the overall process is very time consuming.
  • Your credit score will be negatively affected during the debt mediation process as the credit providers will still report you to the credit bureaus if you default on your payments.

 

Pros

 

  • Debt mediators act as the go-between so you don’t have to deal with your all on your own.
  • Debt mediation may lead to your debt repayments being simplified and reduced, but only if your credit providers agree to the new arrangements.

 


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Why Consolidate Your Debt?

Why Consolidate Your Debt?

RMDBlog


When used sensibly with the exclusive intention of reducing your debts, debt consolidation can offer you many perceptible benefits.

Should you be struggling to make many different payments to a whole bunch of credit providers in a timely manner, you have the option of consolidating all your smaller loans into one large loan.  This will not only lower the overall interest rate that you will have to pay each month, but it will also save you a lot of blood, sweat and tears spilt over missed payments and demanding credit providers.

Essentially, debt consolidation entails replacing your short-term, high-interest debts with one large, long-term debt with a lower overall interest rate – your home loan being a good example of the latter.  As a property owner, you can apply for further funds on your home loan or bond, as long as the value of your home does not exceed the amount of the outstanding loan amount.

Additionally, debt consolidation saves you from all of the various instalments you would usually have to make to a number of credit providers each month by converting your debt into a single monthly repayment.  I’m sure you can imagine how this would save you money on fees and service charges, which will in turn improve your cash flow.

However, keep in mind that debt consolidation will require a great deal of financial discipline on your part. If you have had problems with overspending in the past, taking out a loan could worsen your financial situation.  This is why National Debt Advisors offer a loan-free debt consolidation option for those who have doubts about obtaining more credit, which provides all the benefits of debt consolidation, without the burden of an additional loan to pay off.


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What is Debt Consolidation

If you have come to the realisation, like so many other South Africans, that it is time to start reducing your debt, instead of developing a bad case of ‘swiper’s wrist’, then you might have considered the option of debt consolidation.

Debt consolidation can be beneficial in that, if you are struggling to keep track of all your accounts, loans and various credit providers, it allows you to merge all of your debts into one, so that you only have to make one monthly payment to be distributed accordingly.  It can also be a way of helping you to meet your monthly payments, as debt consolidation often comes with reduced rates.

How it works with some financial institutions is that you provide them with a list of all your outstanding debts and then, if you qualify for a debt consolidation loan, you will be credited with the total amount you need in order to settle all your debts with your various credit providers.  In this way, you will end up only owing this amount to the financial institution who consolidated your debt, which means you will also be paying a much lower interest rate – instead of paying off many accounts with high interest rates.

Other financial institutions require that you provide them with a settlement letter from your current credit providers.  Thereafter, should you qualify, they will settle all your debts for you. In this way, you won’t be faced with the temptation of using the debt consolidation loan for other things, which would cause you to sink even deeper in debt.

Should you opt for debt consolidation, you will probably save on interest and other costs, as a single payment to one financial institution is likely to be more cost-effective than paying off a number of institutions, with a scary array of different administration fees and bank charges, which tend to be particularly high these days. 

Furthermore, you won’t have to deal with your credit providers, should you choose the debt consolidation option at National Debt Advisors, as your debt counsellor will deal with all of your credit providers on your behalf. Furthermore, NDA offers you a consolidation solution that will allow you to only make one payment towards your debts each month, yet doesn’t require you to take out a loan, if you are concerned about creating more debt for yourself.


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