Ready to say goodbye to student loan debt for good? Learn More

How to Settle Your Debts in New York

Upsolve is a nonprofit that helps you get out of debt with education and free debt relief tools, like our bankruptcy filing tool. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card.  Explore our free tool

In a Nutshell

If debt settlement is an option that you want to explore further, then follow the below next steps to help determine if it will suit your debt management needs. If you do choose to pursue it, this article will walk you through the debt settlement process so that you can move forward with confidence.

Written by Attorney Eva Bacevice
Updated March 26, 2021

You always hear that if you can make it in New York, you can make it anywhere. But what if you’re not making it in New York? What’s if you’re struggling to keep up with your expenses and bills and there never seems to be enough money coming in and too much going out? That’s the point where you might want to start exploring your debt relief options. One option is debt settlement. A debt settlement involves paying less than the full amount of your total debt to each creditor to fulfill your obligation to them, usually in a lump sum payment upfront or as part of a very short installment plan. You can try debt negotiation on your own or you can work with a New York debt settlement company. Creditors do not have to agree to any settlement offers, but they do so more often than you might think. This is because creditors know that once debt payments have been delinquent for a significant period (at least 90 days), their chance of ever seeing any payments on the outstanding balance is very low, only one out of five on average. As such, the opportunity to get some money, even if it’s not the full amount owed, will decrease their overall losses. When you add in the incentive of getting this money upfront in a lump sum, this increases your chances of entering into a settlement agreement. If you have a manageable number of creditors, are already behind on payments and the bulk of your debts are unsecured, like credit card debt, you might be a good candidate for debt settlement. Importantly, you will also need access to funds to make lump sum payments or the ability to set aside money to save up for these offers. If that is not feasible for you or if you have many different types of debts and a large number of them, this may not be your best solution. Debt settlement will not work for payday loans, title loans, student loans, and most medical bills. There are also risks to consider with this debt relief option. If you’re not already behind on your payments, creditors will have no reason to discuss a settlement plan. But once you fall behind, there are irreversible implications, including late fees, penalties, a negative hit to your credit score, collection calls and possible lawsuits from collection agencies. Further, there can be tax consequences to debt settlement, as the amounts “forgiven” can be treated as taxable income by the IRS. Finally, it’s important to be aware that while there are great New York debt settlement companies out there to help you through the process, there are also plenty of predatory companies looking to make a profit off of your financial problems, so you need to be aware of possible scams and look out for red flags. 

Learn More Through Free Nonprofit Credit Counseling

A good first step to getting on track with your personal finances is to learn about the different debt relief possibilities from a reputable nonprofit credit counseling agency. You can meet one-on-one with a credit counselor, who will take an in-depth look at your financial circumstances. They will review your income, expenses, and debt amount and discuss your short-term and long-term financial goals with you. This initial session is always free, and in the end, they’ll recommend a personalized action plan with your best next steps, whether that’s debt consolidation, a debt management plan, or bankruptcy. You should look for a nonprofit organization that is accredited by the National Foundation for Credit Counseling (“NFCC”) as they are held to rigorous standards. While the NFCC doesn’t certify debt settlement companies, you can discuss the option with your credit counselor and get their opinion on whether that’s a feasible option given your financial circumstances. 

How to Settle Your Debts in New York

If debt settlement is an option that you want to explore further, then follow the below next steps to help determine if it will suit your debt management needs. If you do choose to pursue it, this article will walk you through the debt settlement process so that you can move forward with confidence.

Collect Details About Your Debts 

You will need to collect details about your debts to properly evaluate if debt settlement will work for you. Collect your most recent statements for your credit cards and other unsecured debts so that you know the interest rate, monthly payment and current balance for each. You should also collect information on other debts you can’t or don’t intend to settle, like student loan payments and secured loans (like a car loan), so that you can present a complete financial picture to your creditors. If you don’t already have one, now is a great time to get a free copy of your credit report. This can be especially important because it’s very common for credit card companies and banks to assign or sell delinquent debts, sometimes over and over, and you’ll need to make sure that you are approaching the current debt collector. 

Collect Details About Your Ability to Settle Your Debts 

The next important thing to determine is your ability to set aside funds for settlements or your access to money for this purpose. To do this you will need to look at your monthly income and budget. If it turns out that you don’t have any money left over at the end of the month after paying your regular expenses, then debt settlement is not a good option for you, and you may want to consider a Chapter 7 bankruptcy instead. To properly determine your income, you should use your most recent pay stubs, so long as they show a typical work week. If you have recently been working a lot of overtime, it’ll look like you make more than you actually do. Take into account your pay frequency as well. If you’re paid monthly it should be easy to see your net, or take-home, income for the month. If you’re paid weekly or bi-weekly, you will need to calculate the monthly average, since not all months have exactly four weeks. Multiply your check times the total pay periods for a year (26 for bi-weekly or 52 for weekly paydays), then divide the result by 12 to get the monthly amount. Also, include any other income coming into your household, and keep in mind that social security income is protected from creditors. The next step is to look at your expenses, so check recent bills to figure out a good monthly amount for ongoing expenses. You also want to take into account variable expenses, like groceries, that are not always the same. Also be sure to include non-monthly costs that you know will be coming, like paying your car registration once per year, so that you can set aside money to cover expected expenses. See how much money is remaining at the end of the month after you account for these expenses, that’s the amount you will be able to set aside to build up your lump sum settlement payments. You should not, however, raid your retirement accounts to get this money. You could face strong penalties for early withdrawal and may have to address any retirement funds taken out on your income taxes. Additionally, if you decide to pursue another route like bankruptcy after attempting a settlement, the funds in your retirement accounts would have been protected.

Learn About the Costs to Settle Your Debts in New York

There will be costs associated with any debt settlement program, whether you are moving forward on your own or with a New York debt settlement company. This will include late fees and penalties from defaulting on your accounts, although you can seek to eliminate or reduce these costs as part of your settlement offers. If you do decide to work with a New York debt settlement company, you’ll need to pay their fees, as well as any fees associated with a third-party bank account if creating an escrow account is part of their payment plan. New York debt settlement company fees can be structured in a few different ways. They might charge a percentage of your total amount of debt, which is the most expensive option. It’s better if you can find a New York debt settlement company that charges a percentage of your total savings, as that gives them a good incentive to get you the best possible deals. These fees should only come due after settlement agreements are complete so that the company is paid proportionally as your debts are resolved. If a company tells you that you need to pay their fees in full upfront, that is a big red flag to avoid.

Decide Whether to Work with a New York Debt Settlement Company 

If you want to try debt settlement on your own, there is nothing stopping you. If you’re organized, computer savvy, and not afraid to negotiate, you could be a good fit. By conducting your own debt negotiations you’ll save on paying fees to a New York debt settlement company, you get to remain in complete control of the process, and you might have access to creditors who have a policy of not working with debt settlement companies. Be advised, however, that this will take a good deal of time and effort, that can get overwhelming on top of your regular obligations. If you do decide to work with a New York debt settlement company, one of the biggest advantages you will find is the insider knowledge that they have from their established relationships with creditors. This makes it much easier to know whether to agree to an offer or whether you might be able to do even better. They also will know which creditors may be difficult to work with and how to escalate settlement conversations to someone with decision-making authority. 

Research New York Debt Settlement Companies 

If you do decide to work with a New York debt settlement company, you will want to complete some research before signing up so that you can feel confident you have chosen a reputable company. It’s important to know that you’re entitled to certain information from a debt relief company, including the price and terms, the expected timeline for results, the approximate amount for viable offers and what consequences you will face if nonpayment of your minimum payments is part of their program. If a New York debt settlement company refuses to provide any of the above, you should keep looking. It’s also important to know what red flags to avoid. If a debt settlement company offers you guarantees, that’s a red flag because remember that no creditor has any obligation to enter into a settlement agreement. If the company is promoting “new government programs,” that can often be a cause for concern. If a company tells you to immediately stop making payments or stop communicating with your creditors before you have any plans in place, that can also be a problem. And if a company charges their fees before any of your debts are settled you should immediately look elsewhere. You can also check with the New York attorney general’s office, particularly in their Bureau of Consumer Frauds and Protection Division, to see if there have been any complaints filed against a company you are considering or any known scams to avoid. Additionally, you can also check the Better Business Bureau for complaints and to find a New York debt settlement company’s overall rating. 

How to Make Your Debt Settlement Work 

There are some best practices you can follow to help ensure that your debt settlement works out successfully. First, when you are deciding on your payment date into your escrow account or another account where you are setting funds aside, choose a day that is not a due date for any other large billing payment. Generally, avoiding the first of the month is a good idea. Next, you want to make sure that you have a system in place in your budget for upcoming expenses that may only happen once or twice a year so that you have the money available when you need it. Also, make certain that your monthly budget has an emergency fund built into to so that you can also cover unexpected expenses. If you come into extra money like an income tax refund you can always set aside more towards your settlement, but always make sure your emergency fund is in good shape first. 

Alternatives to Debt Settlement 

If it turns out that debt settlement is not the best debt management path for you, whether that’s due to your ability to save for lump sum payments or because the bulk of your debts are not unsecured debts, keep in mind there are other options to consider that might be a better fit for your financial circumstances. Below we will offer a brief overview of some of the other common debt relief options that may make more sense for your current needs. 

Upsolve Member Experiences

1,830+ Members Online
Silas Path
Silas Path
★★★★★ 3 days ago
Easy to use and answered all my questions
Read more Google reviews ⇾
chris berger
Chris Berger
★★★★★ 4 days ago
Upsolve makes the process so easy!
Read more Google reviews ⇾
Teresa Logan
Teresa Logan
★★★★★ 7 days ago
Thank you for assisting with the paperwork! It was easy!
Read more Google reviews ⇾

New York Debt Consolidation

Debt consolidation is an option that can be very effective in the right circumstances. In a New York debt consolidation, you take on new debt, usually in the form of a personal loan, to pay off your existing debt. So long as you have a good or excellent credit score and qualify for a lower interest rate on your debt consolidation loan, you will save money by getting rid of higher interest rate debts like credit cards. The key to debt consolidation is having a good or excellent credit score, which unfortunately counts this option out right away for a lot of people. 

New York Debt Management Plan

Another option is to pursue a debt management plan. A New York debt management plan (“DMP”) is a form of debt consolidation that is not dependent on your credit score. You can work with a credit counseling agency to create both a reasonable budget and an affordable DMP monthly payment. The credit counseling agency can then negotiate on your behalf with your creditors to lower interest rates and reduce or eliminate late fees and penalties. Unlike a debt settlement, by the end of your New York DMP, you will have paid in full on all of your debts. 

New York Bankruptcy

If you find that debt settlement doesn’t work for you because there’s no money left to set aside at the end of the month after you pay your living expenses, bankruptcy may be a better option. In bankruptcy, you can eliminate some or all of your unsecured debts to get a fresh start with your finances. Most bankruptcy attorneys offer free consultations so you can explore this option at any point in the process. If you do decide to file a New York bankruptcy you can check Upsolve’s screening tool to see if you qualify for free assistance throughout your case. 

Written By:

Attorney Eva Bacevice


Eva G. Bacevice graduated from the University of Michigan Law School in 2001. She practiced law for close to a decade in the area of consumer bankruptcy. She now works in higher education as an Academic Advisor for undergraduate students at the Stephen M. Ross School of Business,... read more about Attorney Eva Bacevice

It's easy to get debt help

Choose one of the options below to get assistance with your debt:

Considering Bankruptcy?

Our free tool has helped 13,566+ families file bankruptcy on their own. We're funded by Harvard University and will never ask you for a credit card or payment.

Explore Free Tool
13,566 families have filed with Upsolve! ☆

Private Attorney

Get a free evaluation from an independent law firm.

Find Attorney

Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families resolve their debt and fix their credit using free software tools. Our team includes debt experts and engineers who care deeply about making the financial system accessible to everyone. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations.

To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.