Pros of Debt Mediation
- 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.
Cons of Debt Mediation
- 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.
