Debt Mediation: What is it and How Does it Work?
Posted on June 9, 2021 in Debt
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 difficult communications are often going through a difficult financial time already 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; 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 pretty difficult situation. Debt mediation, or sometimes referred to as debt arbitration, allows you and your creditors to come to an agreed upon 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 will be able to get your financial life back on track instead of taking drastic measures such as filing bankruptcy.
When you undergo debt mediation, you will have the opportunity to connect with your creditors, either one-on-one or through a “middleman,” also known as a debt mediation service. The purpose of connecting is to decide upon a mutually beneficial solution to settling your debt.
How Does Debt Mediation Work?
The debt mediation process begins when your debt owed reaches about 90-180 days with no payments. In these instances, your creditor can give your case to a debt collections agency. If a debt collector takes up a case, they will proceed to harass you until you pay your debt. If the debt remains unpaid, you may receive a summons for court.
Once you receive a summons from the court, you will have 30 days to issue a response. This is when you will want to begin debt mediation.
This debt relief solution is a favorable option for both parties because no one wants to go to court. Even creditors would rather not go to court because it is time-consuming and expensive to take the debt to those lengths. However, after failing to pay for so many years, they often choose to go to court in order to have the judge force payment through seizing assets.
Most creditors would greatly prefer debt mediation to going to court, and would therefore be likely to agree to begin the mediation process. Some creditors might even suggest debt mediation before taking the case to court. This can also serve as a good option for military or veteran debt relief.
Debt Mediation Companies Facilitate Discussions Between You and Creditors
If debt mediation is agreed upon, your interest payments will be lowered to the lowest rate offered and you will settle on an agreement for the amount of principal reduction. It’s possible to consolidate various debts into one payment that is paid into a trust account that is paid out by the debt mediation company.
To get to this point, a debt mediation company can be utilized as the “middleman” between you and your creditors. They will work to mediate communication and, eventually, payments between both parties.
With a debt mediation company, the stress and tension that can occur between you and your creditors is mitigated, making things easier on you both.
Debt Mediators Can Stop Harassment From Creditors
Another benefit of working with a debt mediation company is that they are able to put an end to harassing and intimidating communications from the creditors. If you’ve received overwhelming calls or letters from creditors, your debt mediation company will be able to negotiate with the creditors to get the communications to stop.
When you enter into debt meditation, you are showing your creditors that you are willing to work with them and settle your debt. This is often the sign they need to cease their harassing communications.
Reduce Your Stress With Debt Mediator Solutions
Having a lot of debt is stressful. When that debt is sent to creditors who might be taking you to court, that stress is magnified exponentially. 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 case scenario, tends to make things seem more doable.
Working with a debt mediation company will help you breathe again as they negotiate on your behalf and help you gain a path towards settlement.
What Happens to Credit Card Debt in Mediation?
With debt mediation, interest payments are lowered to the concession rate and an agreement is made on the amount of principal reduction. This enables you to consolidate debts, including credit card debt, into one monthly payment.
As your debt meditation company pays out money to your creditors, you slowly have the debt paid off. Another way that debt mediation can pay off your credit card debt is if you make one lump sum payment. This can be agreed upon in a settlement, and you will pay the agreed upon amount in order to pay off the debt.
How Does Debt Mediation Affect Your Credit?
By entering into debt mediation through a professional company, the creditors are essentially taken off your hands. Every payment will be arranged and taken care of while you make one monthly payment, meaning any negative effects to your credit report are temporary.
As long as you are making your one payment each month, your creditors are receiving payment from the debt mediation company. That means they won’t have any late or missed payments to report. You will no longer have defaults reported to the credit bureaus and overtime, your credit score will increase.
If you’re looking for more information about impacts to your credit report, be sure to see our guide to help determine if being debt free is worth damaging your credit score.
Professional Debt Mediation Services
When you start looking for a debt mediation company in the united states, you may notice there are a number of scams. It can be stressful and a bit disconcerting to try and determine who you can trust and who to avoid. However, if you know what to look for in a debt relief company, you’ll be able to find a professional service to help you with your debt.
Take a look at the history and reviews of any company you are considering working with. They should have a reputation for achieving great results for their clients. It’s also a good idea to check the Better Business Bureau to ensure the business isn’t racking up a bunch of complaints filed against them.
If the company has a number of positive reviews and settlements to back them up, they’re likely a good bet.
A professional company will offer consolidation loans, settlement payments, and credit counseling, to help you get your finances back on track.
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