Debt mediation is a process by which a consumer who has out-of-control debts hires a mediator, usually an attorney, who negotiates a deal with the credit companies to settle the debt. It will usually have a negative impact on a consumer's credit rating and score.
Hiring the Right Mediator
Many scams exist in this industry, with unscrupulous people taking advantage of desperate consumers. Do your research and find a reputable debt mediator. Realistic negotiations can amount to a reduction of up to 40 percent to 60 percent of your debt. Once hired, the credit companies may only contact your debt mediator and the phone calls should cease.
Stop Paying
When you realize you're in trouble, stop making your monthly payments on unsecured debts. When you hire a mediator, you will normally pay a monthly fee to the mediator, or a percentage of the remaining loan to cover his fees. It will hurt your credit rating, but that is the negotiation that the mediator is handling.
Not All Debts Covered
In a debt mediation, only unsecured debts are covered, like medical bills, credit cards and school loans. Secured debts like your mortgage or support payments are not covered and cannot be negotiated. Continuing to pay your secured debts is highly recommended.
Negotiated Items
The debt balance is negotiated, but usually, the mediator will negotiate with the banks to remove the late payment and mark the debt "paid as agreed". This is at the bank's discretion and some will not follow through even after agreeing to do so. In this case, your credit rating will show the debt as unpaid for seven years.
Is Debt Mediation for You?
If you have a substantial amount of credit card or medical debt, then debt mediation may be the best option for you. If, however, you cannot manage any of your debt and it includes a mortgage and other secured loans, then bankruptcy should be given serious consideration as debt mediation alone will not provide you with immediate assistance.
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