23 Sep Mediation VS Debt Review: Key Differences Explained

Are you struggling with debt and comparing mediation and debt review? There are several differences between these two processes, although both aim to help South African consumers regain control of their finances. Generally, debt review is the preferred approach for larger debts, especially if you are worried about creditors taking legal actions. At Cape Town Legal Consultants, we specialise in debt review removal and offer services to help you legally remove debt review from your record.

Both debt review and mediation involve newly restructured repayment plans that cover your debts, according to your affordability. When considering mediation vs debt review, here are the key differences explained to help make your decision easier.

Types of Debt Covered

Mediation is more limited and only covers unsecured debts, like credit cards, store cards, or small personal loans. If you have debts that are higher and include both secure and unsecured loans, debt review is the better choice, as it covers all your debts, including your home or car loan. If you’re overindebted and cannot manage your budget and debts according to your income, debt review offers the easier path to financial freedom.

Who Assists You

When it comes to debt review, you will follow a legal process that is regulated by the National Credit Act (NCA). A debt counsellor will work with you to restructure your debts by negotiating with your creditors on your behalf. You should choose your debt counsellor carefully, by ensuring they are registered with the National Credit Regulator (NCR). In contrast, mediation requires the involvement of a payment resolution officer.

Process Formality

Since mediation makes the most sense for smaller debts, it is the less formal option. There are no court orders involved, and agreements for reduced payments are made directly with the creditors. On the other hand, debt review is a legal process that provides you with formal protection from creditors, meaning they cannot take any legal actions against you. After Debt Review, you’re issued a Credit Clearance Certificate – this is not a requirement with mediation.

Effects on Credit Score

During the debt review process, your credit report will be flagged, which stops you from accessing new credit. This flag is removed from your credit report after you’ve completed debt review successfully, and you can then start to rebuild your credit score. Mediation does not restrict your access to new credit and will have minimal impact on your credit score, as it is not a formal court process.

Duration and Outcome

Considering that mediation helps you manage smaller loans and credit repayments, it is generally a short-term solution to overcoming debt. Debt review can take anywhere from 3 to 5 years, during which time you remain protected by creditors and focus on repaying your debts through a single payment, managed by a payment distribution agency (PDA).

If you’re ready to restore your credit report, we specialise in judgment removals and we know how to clear your name after debt review. We’re here to simplify your finances. CONTACT US today to get started.