Debt mediation is an alternative to debt consolidation or bankruptcy that can help you settle debts with your lenders for less than you owe. If you have a lot of debt, know that there are many options available. Debt mediation is one such option to help you regain control of your finances. With rising inflation and housing costs, millions of Americans are facing increasing financial burdens.

Americans owe $1.13 trillion in credit card debt. Add student loan debts, medical bills, personal loans, and housing costs to it, and debt can soon become challenging to pay off. Read on to learn how debt mediation can help.  

What Is Debt Mediation?

Debt mediation is a process where a professional mediator facilitates negotiations between you and your lenders with the goal of reaching a mutually agreeable resolution. The purpose is to reach a solution that allows you to repay your debts, avoid bankruptcy, and alleviate your financial stress.

Debt mediation may reduce the interest you are currently paying, set up a structured repayment plan, or settle your account for less than you owe. With any of these solutions, you’ll be in a much better place to repay your debts faster.

What Is Professional Debt Mediation Settlement?

Debt mediation can help you achieve financial stability and reduce the burden of debt through debt mediation settlement. This may be a good option if the lender has not sued you yet and the court is not involved.  

Debt settlement involves making a lump sum payment to your lenders, usually much lower than the original amount you owe. You’ll typically need to stop paying your lender and instead deposit the funds into a separate savings account, which oftentimes is administered by a debt settlement company. Once the lump sum amount is saved, it can be paid to your lender to settle your account in full, as the entire remaining balance of what you originally owed is forgiven. With a settlement, your total debt will be reduced to make it easier for you to pay it off.  

How Does Debt Mediation Work?

Debt mediation differs from other options like bankruptcy and debt consolidation because it involves a mediator working on your behalf. A trained debt mediator acts as a neutral third-party intermediary between you and your lenders. They act as a facilitator to negotiate extended repayment terms, reduced principal amounts, or reduced interest rates.

Debt mediators can help you negotiate a settlement amount and/or create a customized repayment plan to ensure the borrower's future payments are affordable. Once you reach a resolution, payments will typically be made to a separate bank account until you have saved enough to pay the agreed-upon settlement amount. It's important to remember that this does not mean full debt forgiveness. Only a portion of your original debt amount may be reduced.

Why You Should Use Professional Debt Mediation Services

Professional debt mediation can offer you a number of advantages when compared to negotiating credit card debt and other unsecured debts on your own. Professional mediators are experts in negotiations and conflict resolution. They can improve your chances of resolving debts successfully and cost-effectively. 

Debt mediation services are designed to reduce stress, provide guidance, protect your interest, and handle communications with your lenders.

How To Hire the Right Debt Mediation Company

If you can no longer pay your debts, it may be time to hire a debt mediation company to negotiate on your behalf. Knowing the difference between a great mediator and just an average one can have a huge impact on your results. Any company you hire should have a lot of experience in dealing with lenders.

Their reputation also matters a lot. Take the time to check customer reviews to see what others have to say about their services. Learn more about the services they offer and the fee structure. Finally, work with someone you can connect to and communicate with easily. This process won’t work well if you find it difficult to get along with your mediator.  

Pros and Cons of Debt Mediation Programs

Before you enroll in a debt mediation program, it’s important to understand its benefits and drawbacks.


  • It may help you successfully negotiate with lenders for a reduction in principal. This may lower the total debt you owe and make it easier for you to pay off your debt.
  • Alternatively, debt mediation can also help create a structured repayment plan tailored to your financial situation. This ensures affordability and a clear roadmap to becoming debt-free.
  • Paying off your debt can help you avoid bankruptcy and other serious long-term credit-related consequences.
  • Professional support and guidance can help you avoid stress, understand your rights, and gain a valuable understanding of how to navigate debt repayment.
  • The lessons learned during the debt mediation process may help you recognize and avoid falling into the trap of the never-ending debt cycle all over again.


  • Debt mediation may have a negative impact on your credit score. With a lower payoff amount, lenders may report your account as “settled” on your credit reports instead of “paid as agreed,” which may impact your creditworthiness going forward.
  • Programs may last for several months or even years and will require discipline to adhere to the repayment plan.
  • There may be tax consequences. The amount of any forgiven debt will often be considered taxable income by the IRS.

Types of Debt That Can be Resolved Through Debt Mediation

Debt mediation typically helps you pay off unsecured debts. Secured debts, like auto loans and mortgages, are not eligible. Here is a list of what kinds of debts are eligible for mediation:

  • Credit card debt
  • Medical debt
  • Personal loans
  • Payday loans
  • Gambling debt
  • Business lines of credit and other unsecured business debt
  • Farm debt

Debt mediation is required to operate within the prescribed legal framework. This is one of the reasons why it’s important to always work with reputable, licensed companies. As a borrower, it is also important to be aware of your rights to understand what lenders can and cannot do to recover their money.

Many lenders use unfair tactics that violate the Fair Debt Collection Practices Act (FDCPA). Legally, a lender or debt collection agency cannot:

  • Contact you at your workplace
  • Contact you after 9:00 PM or before 8:00 AM, local time (where you live)
  • Lie about your debt
  • Misrepresent themselves as to who they are or the power they have to recover your debts(s) or help you resolve them
  • Use offensive or threatening language
  • Continue to contact you after you request them to stop 
  • Threaten you with violence or jail time.

If a lender violates any of these laws, let your mediator know immediately. You can also file a complaint against them with the Consumer Financial Protection Bureau.

Debt Collection Mediation

Debt collection mediation plays an important role in the mediation process, especially if you think your lender may take legal action. Debt mediation can facilitate communications between both parties to express concerns and come up with a mutually agreeable solution. It allows both parties to find alternatives to a lawsuit.

When you reach a settlement that is satisfactory for both parties, there are fewer chances of legal action. Most importantly, it preserves the relationship between you and your lender, demonstrating that you are willing to work with them. This increases the likelihood of your lenders offering favorable settlement terms.   

Alternatives To Debt Mediation

If you think debt mediation is not the right option for you, there are several other alternatives to explore. The important thing to remember here is that regardless of the type of debt you have or the amount, there is almost always a solution available to help you lead a debt-free life.

Credit Card Debt Mediation

If you have large outstanding balances on your credit cards, consider mediation services that specialize in helping you pay off credit card debt. Your mediator can assess your debt and your overall financial situation. 

They can review information about interest rates, fees, outstanding balances, and collection efforts taken by lenders. Credit card debt mediators can then establish communication with your lenders and seek to resolve the situation, either through a settlement agreement or a negotiated repayment plan.

Debt Settlement

You can also work with debt relief companies specializing in negotiating debt settlement agreements. This can be an effective option when you have over $10,000 in unsecured debt. Debt settlement can usually be done when you are already past due on your accounts and do not have the ability to repay the entire amount you owe. The company can negotiate with your lender to accept a lump sum payment that is substantially lower than the full amount you owe.

Debt Consolidation

With debt consolidation, you can roll several debts into one. If you have a good credit score, you may be eligible for a balance transfer credit card or a debt consolidation loan. Once approved, you can use the funds to pay off your lenders. You’ll then have a single debt payment each month.

Debt consolidation can help you save a considerable amount of money because the interest rate of the personal loan is typically lower. If you opt for a 0% balance transfer credit card and manage to clear your entire balance before the end of the 0% APR introductory period, you can save even more.   


As a last resort, you can file for bankruptcy if you are eligible. Chapter 7 bankruptcy can wipe off most unsecured debts, but it is a means-based court-administered process that requires you to demonstrate extreme financial distress. 

Chapter 13 bankruptcy requires you to restructure and pay off your debts according to a court-approved process over a period of three to five years. The remaining debt is then forgiven. Bankruptcy can also severely impact your credit rating and stay on your credit report for years. Seek legal advice to check if bankruptcy is right for you.

Get in Touch With a Debt Mediation Company Today

Paying off debt takes discipline and time. You’ll need to stay motivated by tracking your progress and celebrating little wins. If you need support, debt mediation can be an effective way to pay off your debts.

Consult a debt relief professional to explore other options if you think debt mediation isn’t right for you. Depending on how much you owe, your income, and the kind of debts you have, they can offer you advice on what kind of debt relief measures will be suitable for you.