The Step-by-Step Process of Professional Debt Mediation

Professional debt mediation is a valuable tool in the fight against debt. It offers protection against legal action from creditors by allowing you to pay less in interest and lessen your repayments. Often, you’ll be able to postpone repayment dates and extend repayment periods, too, helping you afford debt repayments more easily in the long term.

Many consumers are confused about how professional debt mediation works and why they should opt for it over other debt help systems.

In this post, we’ll discuss the workings of professional debt mediation in a step-by-step format and why it’s a better voice than other debt help systems.

Let’s dive in!

How Professional Debt Mediation Works

First, your debt mediator will assess your finances. After ascertaining how much you owe each creditor and why you struggle to pay your debts, they’ll submit a proposal to your creditors. In the proposal, they’ll negotiate for reduced interest rates, cut repayments, extend repayment dates, and postpone repayment dates. When everyone has agreed to the proposal, you’ll begin making adjusted repayments by the changed dates.

Assessment

Your debt mediation professional will ask you how much you make per month with your salary and other income, total monthly expenses, and total monthly repayments.

They’ll ask about:

• Salary income: how much you’re paid from your job, if applicable
• Income from other assets, such as stocks or rental properties, if applicable
• Total monthly expenses, such as school fees and monthly expenses
• Your monthly repayments, interest rates, admin fees, and balances

After obtaining this information, they may ask for proof of the information you’ve provided, such as payslips, a credit report, bank statements, credit agreements, or other proof of the information you’ve provided. They may also contact creditors to confirm the information.

After they have a complete picture of your financial circumstances and how indebted you are, they’ll begin to prepare a proposal.

Proposal

Your debt mediator will propose how they suggest your creditors might reduce your interest rates and repayments. Usually, they’ll also suggest that your repayment period be extended or dates be postponed.

• An extended repayment period could allow you to pay less each month, making it less likely that you’ll default.
• Reduced interest rates lower the overall debt you’ll accrue in the long term.
• Reduced repayments mean you’ll have to pay less on your debt.
• Postponed repayment dates may allow extra time for you to make repayments, helping you avoid penalties or restrictions.

Note that your creditors are not obligated to agree to your debt mediator’s proposal. If they agree, you’ll move on to the next step: making the adjusted monthly repayments on time.

Paying Your Creditors As Agreed

Once everyone has agreed to your debt mediator’s proposal of reduced interest rate, lowered repayments, postponed repayment dates, and extended repayment periods, you must start making repayments on time and as agreed.

If you don’t, you may face legal action, as debt mediators are often a last resort against what could be legal action, such as summons to court resulting in judgments, garnishee orders, or administration orders. Sometimes, they are listed to ward off section 129 letters – or even in the face of them.

Why Debt Mediation As Opposed to Other Debt Help Methods?

In South Africa, you can escape debt through debt review, sequestration, administration orders, and debt mediation. Let’s compare debt mediation to these methods.

• Unlike debt review, you can take out finance under debt mediation
• Sequestration puts your assets at risk, while debt mediation could protect them
• Administration orders are only applicable to debts of R50,000 or less, whereas debt mediation is not amount-dependent

All in all, debt mediation stands out as an accessible way to restructure your finances and save money in the long run. The simplicity of its process and long-term financial sustainability make it one of the most attractive debt help methods, particularly for those with partially manageable debt.

If you would like assistance from a professional debt mediation expert, contact Credit Rehab. We would be glad to help you on your journey to financial wellness!