Voluntary debt mediation: what is it and how does it work?
Far too many people know the sinking feeling of receiving a summons from a creditor. This typically comes after a claim has been filed against them due to delayed payments. People who receive these communications are often already going through a difficult financial time, and the summons can feel like a kick in the gut.
While it can be stressful and very overwhelming to get a summons, there is help out there: professional debt mediation or debt settlement.
What is debt mediation?
Debt mediation is exactly what it sounds like: an attempt at mediating, or settling, debt. When you have been unable to pay what you owe for an extended period of time, you find yourself in a difficult situation. Debt mediation, sometimes referred to as debt arbitration, allows you and your creditors to come to an agreed arrangement that is beneficial to both parties.
As debt mediation seeks to establish an agreement that settles the debt, the process is also known as debt settlement. Through this type of consumer debt relief, you can get your financial life back on track instead of taking drastic measures.
When you undergo debt mediation, you have the opportunity to connect with your creditors, either one-on-one or through a “middleman” – a professional debt mediation service. The purpose of connecting is to decide on a mutually beneficial solution to settle your debt.
How does debt mediation work?
The debt mediation process typically begins when your debt reaches about 90–180 days with no payments. At that point your creditor can hand your case to a debt collection agency. If a debt collector takes up a case, they will pursue you until you pay your debt. If the debt remains unpaid, you may receive a summons to court.
Once you receive a summons from the court, you have a limited time to respond. This is when you will want to begin debt mediation. It is a favourable option for both parties because no one wants to go to court – it is time-consuming and expensive for creditors too. However, after a long period of non-payment, creditors often choose to go to court so that a judge can force payment through the attachment of assets.
Most creditors would greatly prefer debt mediation to going to court, and are therefore likely to agree to begin the mediation process. Some creditors might even suggest professional debt mediation before taking the case to court.
Professional debt mediators facilitate discussions between you and your creditors
If debt mediation is agreed upon, your interest payments can be lowered and an agreement is reached on the amount of principal reduction. It is possible to consolidate various debts into one payment that is paid into a trust account and paid out by the debt mediation company.
To get to this point, a debt mediator acts as the “middleman” between you and your creditors, managing communication and, eventually, payments between both parties.
With a professional debt mediation company, the stress and tension between you and your creditors is reduced, making things easier for everyone.
Debt mediators can stop harassment from creditors
Another benefit of working with a debt mediation company is that it can put an end to harassing and intimidating communication from creditors. If you have received overwhelming calls or letters, a debt mediator can negotiate with the creditors to get the communication to stop.
When you enter into debt mediation, you show your creditors that you are willing to work with them and settle your debt. This is often the sign they need to stop the harassing communication.
Reduce your stress with debt mediation
Having a lot of debt is stressful. When that debt is handed to collectors who might be taking you to court, the stress is magnified. It can be hard to focus on anything else when you have creditors, debts and penalties looming over you.
With debt mediation, you can reduce, or even eliminate, the stress associated with being in debt. Having someone on your side, fighting for the best outcome, makes things feel more manageable – and helps you breathe again as they negotiate on your behalf towards a settlement.
What happens to credit card debt in mediation?
With debt mediation, interest payments are lowered to a concession rate and an agreement is made on the amount of principal reduction. This lets you consolidate debts, including credit card debt, into one monthly payment.
As your debt mediation company pays your creditors, the debt is gradually paid off. Credit card debt can also be settled with a once-off lump-sum payment, if this is agreed in the settlement.
How does debt mediation affect your credit?
When you enter into debt mediation through a professional company, every payment is arranged and taken care of while you make one monthly payment, meaning any negative effects on your credit report are temporary.
As long as you make your one payment each month, your creditors receive payment from the debt mediation company, so there are no late or missed payments to report. You will no longer have defaults reported to the credit bureaus and, over time, your credit score can improve.
Choosing a professional debt mediation service
When you look for a debt mediation company, you may notice that there are a number of scams. It can be stressful to work out who you can trust. If you know what to look for, you will be able to find a professional debt mediation service to help you.
Look at the history and reviews of any debt mediation company you are considering. They should have a reputation for achieving good results for their clients, and few or no complaints filed against them.
If the company has positive reviews and settlements to back them up, they are likely a good choice for debt mediation services.