If you’re a New York resident who’s struggling with overwhelming debt, there are several debt relief options you can pursue. You can enroll in a debt management program run by a nonprofit credit counseling agency, apply for a debt consolidation loan, or try debt settlement. You may also want to consider filing bankruptcy. Each option has its pros and cons, so it’s important to do your research before deciding which is best for you.
Written by Attorney Curtis Lee.
Updated March 31, 2022
Whether you enjoy the buzz of New York City, the nature in the Adirondacks upstate, or live somewhere in between, being a New Yorker has its advantages. But living in the Empire State also has its costs. So it’s not surprising that some residents have trouble making ends meet and find themselves in debt. This could be the result of student loans, credit card debt, or a job loss during the pandemic. The good news is that there are several debt relief services and programs available. In this article, we’ll take a look at some of the more common New York debt relief programs and let you know what they have to offer.
The Financial Landscape for New York Residents
Let’s start with the good news — New York is one of the top 10 states with the highest average hourly wage for its workers. But now for the bad news — the typical cost of living in the state of New York is about 21% more than the national average. This is largely due to the cost of housing. As if that’s not enough, many New Yorkers have lost their jobs because of the coronavirus pandemic, and pricing on everything from gas to groceries has been rising.
So it may come as no surprise that the average New Yorker has more than $5,400 in credit card debt. This ranks 14th among U.S. states. Mortgage debt is even higher. New Yorkers carry an average of almost $241,000 in mortgage debt. This puts New York 10th in the nation for the highest average mortgage debt. And while many residents of New York are well-educated, it comes at the cost of private and federal student loan debt. More than 50% of New York college graduates still have student loans to pay off.
Given this financial landscape, it’s no wonder that many New Yorkers are experiencing increasing debt loads. And with inflation increasing, staying afloat financially may become more difficult. Luckily, there are several debt relief options available to help New Yorkers on the path to becoming debt-free.
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Debt Relief Options for New Yorkers
Debt relief means a program, strategy, or measure intended to make it easier for you to repay your debts. Debt relief can do this in several ways, including reducing the overall debt or refinancing the debt to make it easier to make payments. Several debt relief programs are available to New York residents.
Debt Management or Credit Counseling Programs
Technically speaking, credit counseling isn’t a form of debt relief. But specially trained credit counselors can give you tailored budgeting and financial advice to help you better manage your current debt. Credit counseling programs educate consumers about what they can do to resolve their money issues. Often they offer a free consultation. Credit counselors may also offer to help implement a debt management plan.
In a debt management plan, a credit counseling agency will contact your creditors and try to negotiate a payment plan that makes it easier to pay off your debt. They make paying off debt easier in two main ways.
First, they make arrangements for you to just make one payment per month. This goes to the debt management plan administrator who then divides up the payment and forwards it to each of your creditors. This means you no longer have to keep track of multiple payments and deadlines each month.
Second, the credit counseling agency can lower your monthly debt payment. They usually accomplish this by lowering the interest rates for your debts. Depending on the terms of the debt management plan, you could even reduce how much money you’ll have to pay overall to pay off all your debts. But you should expect to still have to pay off your entire debt principal amount.
As long as you make your full debt management plan payments on time, you’ll no longer have to deal with debt collection calls or late fees. Debt management plans are often designed to take three to five years to complete. But your time frame will depend on the exact terms of your debt management plan.
Debt Consolidation Loan
Debt consolidation involves taking out a new loan and using the money to pay off two or more higher-interest debts. This leaves you with a single monthly payment and, hopefully, an interest rate that’s much lower than the debts that were just paid off. If the interest rate is lower, your new monthly payment should be smaller than the combined amounts of the older debt payments as well. To get a lower interest rate, you need a good credit score. Credit card balance transfers and personal consolidation loans are the two most common ways to consolidate debt.
You may be wondering if there’s a catch. There can be. If you do a credit card balance transfer, you’ll likely get a low introductory interest rate. Sometimes this rate will be as low as 0%. But this rate will have a short term, such as six months. After that, the interest rate will increase significantly to a normal credit card interest rate.
If you’re using a personal debt consolidation loan, there could be a loan origination fee. If you take out a large consolidation loan, this fee could amount to thousands of dollars. Finally, someone with a poor credit score or higher-than-average credit card debt may not qualify for a debt consolidation loan. Or if they do qualify, the interest rate won’t be low enough to justify going through with debt consolidation.
Debt Settlement Program
One of the most widely advertised forms of debt relief is debt settlement. While you can settle your debts yourself, there are many debt settlement companies that promise they can help you settle your debt for less than what you owe. These are usually for-profit companies that claim they can negotiate with your lenders and convince them to accept a lump sum payment that’s smaller than your overall debt.
Here’s how debt settlement is supposed to work. After getting in touch with a debt settlement company, they’ll tell you to stop making any monthly debt payments. Instead, the debt settlement company will have you send that money to an account it set up for you.
For the next few months or years, you’ll continue sending money to this account while paying nothing to your creditors. After you’ve accumulated enough money in your debt settlement account, the debt settlement company makes a settlement offer to your creditors that’s less than what you owe. Creditors may agree to this because they’d rather get partial payment of your debt than nothing at all.
Drawbacks to Debt Settlement
This may sound great, but there are several potential drawbacks, including:
Increased debt collection efforts. When you stop making monthly payments to your creditors or debt collectors, you can expect them to begin or ramp up debt collection efforts against you. This means you’ll get debt collection phone calls and letters. Creditors can even file a debt collection lawsuit against you. If this lawsuit is successful, creditors may garnish your wages or put a lien put on your home or other property.
A drop in your credit score. You can expect your credit score to drop as missed payments show up on your credit report. Your payment history is one of the most important factors in your credit score.
Low success rates. The success rate for most debt settlement programs isn’t great. Then there’s the fact that there are many unsavory debt settlement companies out there that break the law, such as asking for their payment before first settling your debt.
Nonprofit Debt Settlement
Not all debt settlement programs are offered by for-profit companies. Some of these debt relief programs come from nonprofit credit counseling agencies and organizations. Nonprofit companies that offer debt settlement are often more successful than for-profit companies. Nonprofit debt settlement companies may be able to settle a debt for 40 or 50 cents on the dollar.
Nonprofit debt settlement is different than for-profit debt settlement programs because there’s no debt negotiation. Instead, the nonprofit company reviews your financial situation and determines if you’re likely to qualify. Assuming you are, the nonprofit company contacts your creditors on your behalf and submits a debt settlement proposal that’s either accepted or rejected. If an agreement is reached, you can pay off your debt in just three years and can avoid having to come with a lump sum payment typically associated with traditional debt settlement.
Contact the Credit Card Company or Lender Directly
If you’re struggling to manage your debts, you can directly contact your lenders to ask about your options. It might seem like they don’t care about your financial challenges, but they often do because they want to make sure they get paid back the full amount they lent you. It’s not good for you or them if you miss a payment or default on a debt.
This is why many lenders offer financial assistance to borrowers. If you have a qualifying reason, such as a serious illness, job loss, or pandemic-related difficulties, they might have a few options available. These could include:
A modified payment plan,
A deferred payment plan,
A late fee waiver, or
File for Bankruptcy To Get Debt Relief
One of the most effective ways to get debt relief is to file Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, your unsecured debts are discharged, and you no longer have to pay them back. In Chapter 13, you can reorganize your debts in a way that makes them easier to pay. Because the bankruptcy process is controlled by federal law, declaring bankruptcy in New York works pretty much the same way as it works anywhere else in the United States.
But as helpful as bankruptcy is, it also has some significant drawbacks. For one thing, it can hurt your credit score, especially in the short term. Then there’s the fact that it can be difficult to keep your home when filing Chapter 7 bankruptcy. Chapter 13 bankruptcy makes it possible for homeowners to keep their homes because it reorganizes debt. But you’ll need a steady source of income to file Chapter 13 because you have to continue making these monthly payments. You’ll also have to stick with your repayment plan for 3-5 years.
While Chapter 7 bankruptcy allows you to discharge your unsecured consumer debts, like medical bills and credit card debts, not just anyone can file. You have to pass a means test to be eligible. Also, while exemptions will protect some of your property, you may have to give up your home and/or car.
Factors To Consider When Researching Debt Relief Programs
There are several debt relief options, but it can be confusing to figure out exactly how they apply to your debt situation and which is the best debt solution for you. One thing to keep in mind is that you can deal with your debt on your own. You usually aren’t legally required to hire a lawyer, credit counselor, or a financial or consumer debt professional to execute a debt management plan, debt consolidation, or debt settlement program. Yes, it may help to have a company, attorney, or agency work for you, but it’s not required.
You’ll want to consider the tax implications of debt relief. If you have more than $600 of debt forgiven, the canceled debt could be treated as taxable income.
Finally, you need to watch out for scammers. They understand that many people looking for debt relief are desperate or don’t fully understand their situation. So before you sign a contract or agree to a debt settlement or debt consolidation program, do some research. You can look at the company’s reviews online, but don’t stop there. Check out your state’s attorney general and local consumer protection agency’s website. The Consumer Financial Protection Bureau (CFPB) and the Better Business Bureau (BBB) provide useful information about current scams. You can also look at their consumer complaint database.
New York residents have several debt relief options to choose from. They include debt management or credit counseling programs, debt consolidation loans, debt settlement programs, and bankruptcy. Some debt relief options, like debt management or debt settlement, can be done for free, without a debt relief company or agency. If you do decide to hire help, do your research before you sign a contract to avoid getting scammed.