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How to Become Debt Free With a Debt Management Plan in New York

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In a Nutshell

Getting out of debt isn’t easy, but the right information can help you make good choices along the way. Read on to learn about how a credit counseling agency can help you create a realistic repayment plan and put you on the road to being debt-free once again.

Written by Upsolve Team
Updated April 30, 2020

Getting into serious debt is pretty easy, but getting out can be very hard. One money management tool that may be worth taking advantage of as you seek to get out of debt is commonly referred to as a New York debt management program. New York’s Department of Financial Services licenses budget planners in the state to help people like you pay off unsecured debt in a streamlined way. They’re known as credit counselors in most places, but regardless of what they are called, their function is the same. Budget planners contact creditors to help set up lower fees and lower interest rates in an effort to create a debt management plan with single monthly payment. As part of a New York debt management plan they distribute a client’s payments among their creditors to address outstanding debts. 

Entering into a debt management program isn’t the best option for everyone. A DMP can only address certain debts like credit card debt and medical bills, so it’s not the best choice for handling payday loans or secured debt like auto loans. Additionally, credit card companies will close your accounts when they’re notified of your DMP, which isn’t an ideal situation for some individuals. Your credit score may also take a hit initially, but it’s worth noting that consistent payment should raise your it long before your debt is paid off. 

Is a Debt Management Plan the Same as a Debt Consolidation?

A New York debt management plan is just one type of debt relief available under the general debt consolidation umbrella. When most people talk  about debt consolidation, they are referring to the process of securing a debt consolidation loan. A debt consolidation loan acts as a balance transfer so that you can consolidate your debt into a single account. This form of debt consolidation can be as simple as transferring credit card bills to a card with a much lower interest rate or can involve securing a new loan or home equity line of credit. Debt consolidation loans and DMPs are often used to lower overall payment amounts and lower interest rates. Both debt relief options roll multiple accounts into a single payment per month.

The big difference is that a debt management plan doesn’t involve securing a new line of credit and unlike a consolidation loan, you don’t need a minimum credit score to qualify. A consolidation loan won’t appear on your credit report like a New York DMP, showing up as just another debt instead; and, with a loan, you can keep your credit card accounts open during repayment. 

How to Become Debt Free With a Debt Management Plan in New York

Getting out of debt isn’t easy, but the right information can help you make good choices along the way. Read on to learn about how a credit counseling agency can help you create a realistic repayment plan and put you on the road to being debt-free once again.

Find a Credit Counseling Agency

Before you create a New York debt management plan, you’ll need to find a trustworthy nonprofit, accredited credit counseling agency. These agencies and their counselors must be licensed if they are operating in New York.  You can schedule a free credit counseling session with a nonprofit agency and the agency should give you free informational materials that answer FAQs upon request. You can also get details on how you’ll meet, initial set-up fees, monthly management fees, what happens if you can’t afford fees, and how counselors are paid – commission-based counselors may try to sell you pricier services for their benefit. 

When researching a credit counseling agency, there are a few ways to check their professional reputation. 

  • The Better Business Bureau can tell you if the company is in good standing. 

  • The New York Attorney General’s website will list any complaints filed against the agency, 

  • Make sure that any nonprofit credit counseling agency you may want to work with is accredited by the NFCC (National Foundation for Credit Counseling), the largest nonprofit financial counseling organization in the country. The NFCC only accepts members who are certified by the COA as employing best professional practices. 

Make sure you do your research before making your final decision, as you’ll want to work with a reputable nonprofit. Find another agency if you aren’t comfortable at any point.

What to Expect at Credit Counseling

New York budget planners can advise you on a variety of topics like student loans, personal finance, bankruptcy, consumer credit, and debt management programs – including creating a New York debt management plan. The basic idea is to discuss your financial situation and create a manageable repayment plan. After your free session offered by a credit counseling agency, you should leave with an action plan that works for YOU.

Finding a few documents before your initial session will make the conversation go more smoothly. You’ll want information regarding your:

  • Income (paystubs, gains in investment accounts), 

  • Expenses (utility and mortgage bills, cell phone bills, loan payments), and 

  • Debts (credit card bills, medical bills, loan balance statements). 

Create a list of secured and unsecured debts you owe to each creditor, interest rates on each of those debts, and the minimum payment each creditor requires. Your credit report has a lot of debt information that can be very helpful to you and your counselor. Though your counselor can make recommendations about debt solutions, you make the final decision. You don’t have to decide immediately; it’s a bad sign if your planner pressures you to commit when the counseling session ends or steers you towards a specific option. However, if your counselor says you’re a good candidate for a New York DMP, it may be a solid option for you.

Making the Decision & Getting Started

Before you make a final decision about entering into a New York DMP, ask any questions you may have. When it comes to fees, does the agency charge an initial set-up fee or a monthly fee to administer your plan? If so, how much? It’s legal in New York to charge these fees. Initial set-up fees usually are not more than $75, and monthly management usually costs no more than $50. These fees are built into your monthly payment. Ask if your agency has a good working relationship with any of your creditors. Having a well-established relationship can make dealing with creditors much easier.  

Take some time to consider if the plan is realistic and you can afford the payments.  If you break from your New York DMP, the penalties and default interest rates that will follow could leave you worse off financially than before you began. Remember to consider all your options, too. Not every solution fits every person. Sometimes, bankruptcy is the best choice for a fresh start. If you have questions about bankruptcy, Upsolve can help you find a New York bankruptcy lawyer to learn if this option might be best for you.

Put Together Your New York Debt Management Plan

Your credit counselor will ask you to provide detailed financial information in order to make your New York debt management plan as realistic and comprehensive as possible. The information that your credit counselor will need is more comprehensive than the financial information that you probably brought to your initial counseling session. You will probably be asked to provide:

  • Bank account information, 

  • Detailed credit card information, 

  • Current loan statements, and 

  • Cardholder agreements from your credit cards, which you can get from your credit card company if you don’t have the copy that was mailed to you when you opened the card. 

Go back over the terms of your New York DMP. Can you manage the due date and payment amount each month? Did you decide to create a budget? Did you forget to put expenses on your budget, however small? Can you keep to your budget? If there are any nagging questions or any details worry you, speak up now. Once your final plan is sent to creditors and they accept it, you’ll be locked into those terms for the duration of your repayment.

Begin Payments

Now that you’ve done the hard work of creating a New York debt management plan, it’s time to start making your monthly payments. Your credit counselor should have confirmed your  payment due date and monthly payment amount when you finalized the paperwork to enter into your DMP. Set a reminder or put the date on your calendar – it’s critical you make these payments on time each month. If you can, pay early and consider making extra payments. Your counseling agency will contact your creditors to confirm acceptance of your New York DMP after you begin paying. 

How to Stay Current with Your New York Debt Management Plan

Your debt management program is producing results – you have a plan and your creditors have accepted it. Making timely payments is now your primary responsibility. You and your credit counselor examined your finances and put together a plan that works with your budget. Stay on budget, track your spending to avoid needless expenses through a spreadsheet, budget software, or whatever method works for you. 

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New York Debt Consolidation

Debt consolidation in New York is a type of debt relief that rolls debts with high interest rates, like credit card debt, into a single payment with lower interest rates. A DMP falls into this category, but debt consolidation can also be accomplished by securing a debt consolidation loan. New York debt consolidation often involves getting a loan with lower interest rates, like a mortgage refinance, to pay off your other debts. However, their usefulness is relatively limited – debt consolidation loans are generally only offered to people with good or excellent credit. Individuals with lower credit scores generally prefer DMPs to securing new credit when it comes to the debt consolidation process.    

New York Debt Settlement

During a New York debt settlement, you make monthly payments much like in a New York DMP. However, with debt settlement those payments are used to build up a settlement fund that your counselor will use to resolve your outstanding debts. Or, if a lump sum settlement is available now, it can be used to facilitate a debt settlement with or without the help of a debt settlement company. You may end up paying a fraction of what you owe. Generally, debt settlement works best if you currently have sufficient funds available immediately to make lump-sum offers. The risk can be big, but so can the payoff.

It’s worth noting that a lot of debt settlement companies are not what they say they are and could potentially scam you out of the money you worked so hard to make. Be sure to thoroughly research your options if you decide to work with a debt settlement company.

New York Bankruptcy

In some situations, filing a New York bankruptcy may be the best choice for you. Bankruptcy can erase a wide variety of debts and can serve as a quick, effective way to eliminate credit card debt and other unsecured debts. This process also puts a stop to collection calls and other harassing tactics used to get you to pay your debts. Contact a New York bankruptcy lawyer for advice on whether bankruptcy is the right choice for you. If you decide you want to file bankruptcy but are worried about the expense of hiring a lawyer, Upsolve may be able to help you handle filing for Chapter 7 bankruptcy without an attorney if you qualify for free assistance.

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