Debt Review VS Debt Mediation

What is Debt Mediation?

Debt mediation (VDM) is a process that involves negotiating better debt terms with your creditors so that your monthly debt repayments are lower.

Scamsters often lure financially vulnerable individuals by offering this ‘service.’ They ask for fees based on false promises that all their debt will be cleared and that creditors can’t do anything to come after them again.

This process is so called debt mediation, and has many loopholes that consumers should be cautious about.

Debt mediation does not involve a court process. This means that your creditors can still take legal steps against you to recover money you owe them.

A far better and safer option for dealing with over indebtedness is debt review. This involves restructuring all your debt into a single monthly repayment plan backed by the protection of a court rearrangement order.

Reasons to avoid debt mediation.

• The process is long and complicated

Unlike the debt review process, debt mediation does not allow for a single combined debt repayment plan.

In most cases, indebted consumers have several loans with a number of different credit providers. These debts can include accounts, credit cards, store cards, vehicle finance, personal loans etc.

If you want to have your various debt repayments reduced, your debt mediator needs to negotiate with each of your credit providers separately. This results in a lengthy, and complicated process.

As there is no official registered Debt Counsellor involved and with that the guidelines of the POPIA Act, Credit providers are not cooperative to negotiate with a debt mediator resulting in poor and incorrect agreements.

• The National Credit Regulator (NCR) frowns on debt mediation

The National Credit Regulator, that is responsible for regulating the credit industry, has said that debt mediation goes against the regulations of the National Credit Act because it does not provide the protection that the legislation wants consumers to have.

The NCR has issued a circular as far back as 2014 , prohibiting Voluntary Debt Mediation read circular here The NCR does not support voluntary debt mediation and will not approve it under any circumstance.

If you fall into the trap of debt mediation, you need to understand that you are not protected from any legal action taken by your creditors.

This means your assets can still be repossessed and you may be issued with a summons and in many cases the credit provider may purse a default judgment against you, which could remain on your name for up to 30 years.

You can read more about how to identify a reputable debt management company on our blog.

Stick to using registered debt counsellor to help you with your debt problems. To check if a company or debt counsellor is registered with the NCR, visit the NCR website.

• There is no legal protection for you

Debt mediation does not involve obtaining a granted debt rearrangement court order. This means if your credit provider threatens to take legal action against you, they would be within their rights to do so.

On the other hand, if you were under debt review, credit providers would be barred from taking legal action against you while under debt review.

With debt mediation, only a few of your monthly instalments may be reduced and the monthly financial impact or saving on your cash flow may be minimal.

In contrast, the benefit of debt review is that your entire credit profile is restructured for you and approved by way of a granted court order.

• Scamsters often use debt mediation as a tactic to lure customers

There are many debt removal scams online and scamsters use the terms, voluntary debt mediation, to attract customers.

Scamsters are aware that there is no legal procedures for debt mediation. These scammers make promises, but it is mostly empty promises with far reaching consequences for the consumer.

Most of these scammers claims are over exaggerated , all the while knowing that they are unable to negotiate with each of your credit providers individually.

If unhappy customers complain there is no recourse for them because debt mediation is not regulated by the National Credit Regulator.

Debt mediation or removal scams red flags

• Companies that promise to remove your debt or offer to clear your credit record at the credit bureaus in a short span of time, is always a red flag. Noone and especially not Credit Providers will give you money for free.
• Avoid companies that use the terms: “voluntary debt mediation” and “removal of debt review”.
• Avoid any company that promises to remove your debt or that offers you a loan for a monthly or upfront fee.
• Avoid companies that use the term “blacklisting” – this is not a real thing. You can read everything you need to know about ‘blacklisting’ on our blog for more information on this term.
• Be on the alert for fraudulent companies that use the NCR logo under the guise of being reputable. Always check that a company that offers any kind of debt counselling service is registered on the NCR website.
• Another red flag is if you receive constant unsolicited calls from call centre claiming to be from the National Credit Regulator’s office and wants to discuss debt removal or even debt review removal. This is usually a scam.
• Watch out for over-the-top, unrealistic claims often made in social media adverts. The National Credit Regulator recently warned about scam advertisements with the following misleading headlines which include:
• There is a new High Court ruling helping people in debt write off up to 63% of their monthly payments.
• High Court ruling frees South Africans in debt.
• NCR DC is giving South Africans “Extra Cash” to enjoy by reducing debt interest and protection from repossession of assets.

Before you make use of the services of a debt counsellor, ask for their NCR registration number and verify it on the NCR website.

It is vital that people realise that there is no get out of debt quick solutions. The only way to regain financial freedom is to either cut spending and pay off your debt or to follow the debt review process with a registered debt counsellor.

Debt Review is the good option

What is debt review?

Debt review, sometimes referred to as debt counselling, is a legal process that helps consumers pay off their debt.

Debt review has the following benefits:

• All your debt is consolidated into one affordable monthly payment.
• You can achieve a lower interest rate of close to 0% on your unsecured debt.
• Your assets are protected from repossession by creditors.
• You won’t be able to accumulate more debt while under debt review. This is for your own good and is to help you pay off your debt in the fastest time.

The process is confidential and once complete you are no longer over indebted, and you will receive all your paid-up letters and a clearance certificate.

Once you are debt free, you can apply for new credit with the added benefit of a better credit score.

Debt review is one of the most affordable mechanisms to say goodbye to debt and get the debt relief you need.

It’s a better option than taking yet another loan to pay off current debt because it solves your debt problems rather than just buying you more time and getting yourself deeper into debt.

When does debt review apply to me?

Your NCR-registered debt counsellor will recommend debt review to you if you have too many debts and cannot afford to pay your debt in a timely manner, and you are failing to meet your monthly living costs.

Common signs you are over indebted include:

• Having loan applications rejected.
• Not being able to make your debt repayments on time.
• Having debit orders “bounce” because you don’t have money in your bank account.
• Having more and more accounts falling into arrears.
• Making a habit or “reversing “or “disputing” your debt repayments.

Click here to learn more about Debt Review.

Speak to one of our NCR-registered debt experts today for an obligation-free assessment on whether a legitimate, regulated process to deal with your debt is right for you.