A Debt Solutions Face-Off: Debt Mediation vs. Debt Counselling
A Conflict of Interest
When the National Credit Regulator realised that voluntary debt mediation (VDM) compromised consumers by undermining the National Credit Act and professional debt counselling, they amended the act to show that they were not in support of this debt solution.
The problem with VDM is that Credit Providers (CPs) offer this service as a debt solution to consumers who owe them money, which creates a conflict of interest. This means that the CP’s motivation for providing this service is open to corruption, as they could covertly manipulate the situation in favour of their own interests.
Keep The Debt Collector from The Door
Debt counselling was designed not only as a debt solution but also to protect you, the consumer from CPs who lend you credit when you are clearly not in the financial position to pay it back. In such cases, the credit agreement is referred to as reckless lending, which is unlawful under the NCA, as the CP failed to follow its regulations.
Debt counselling protects you from the unlawful repossession of your assets or property and gives you the opportunity to take legal action against the CP, so you can get financial redress for the wrongs committed against you, the consumer.
CPs often hire debt collectors on commission to collect outstanding payments from indebted individuals. Many of these debt collectors threaten, intimidate and harass debtors, acting not only in an unprofessional, but also highly unethical manner, in order to coerce them into paying up.
Whereas, while you are under debt counselling, your debt counsellor will protect you from both CPs and debt collectors, by dealing with them on your behalf, making it one of the most effective debt solutions for alleviating debt stress.
If you are struggling to pay off your debts on top of all of your basic living expenses, your debt counsellor can help you by negotiating with your CPs to have your monthly repayments reduced and the term of the loan extended. This new restructured payment plan will then be made into a court order that will protect you from CPs taking legal action against you.
Law of The Debt Jungle
Conversely, voluntary debt mediation is not regulated by the law, so a court order cannot be obtained, which means you are not legally protected from your CPs taking legal action against you.
Furthermore, debt mediation only addresses one credit agreement at a time, while debt counselling deals with your entire credit profile all at once. With debt counselling, you will end up with more cash-in-hand at the end of each month, so you can afford your monthly instalments, as well as cover your household expenses when opting for this debt solution.
Naturally, personal circumstances will dictate the type of debt solution that is best for you, like your level of over-indebtedness and the seriousness of your adverse credit listings. Even so, debt counselling is the preferable option overall, as the process was designed specifically to protect consumers and to rehabilitate you back into the credit industry.