Debt Statistics in New York
Debt Relief Programs in New York
If you need debt relief in New York, credit counseling agencies (nonprofit and for-profit), banks, credit unions and online lenders specialize in helping consumers pay off credit card debt, but offer very different approaches to solve your problem.
The five programs offered in New York include debt management programs, debt consolidation loans, debt settlement, nonprofit debt settlement and bankruptcy. Each program has plusses and minuses to consider.
Here is an outline for each program and why it might work for you:
Debt management programs in New York reduce the interest rate on credit card debt to somewhere around 8%. The average interest rate on credit cards is 16.7% (March 2022), but if you miss a payment, the rate can jump to 20%-25%. Miss two payments and the rate can go up again to 25%-30%.
So, if you owe $5,000 on credit cards and reduce their interest rate from 25% to 8%, the interest payment drops from $105 a month to $33. That’s $72 a month you can use to pay off your debt faster. Counselors at nonprofit credit counseling agencies factor your income and expenses and calculate an affordable monthly payment to eliminate your credit card debt.
Another plus: Your credit score is not a factor for enrolling. You can be debt-free in 3-5 years if you make on-time monthly payments, and you may even pay the debt off early. If you don’t like the program, you can quit, though that means the credit card company will take back the interest rate concession and you’re back to paying 20%-30%.
» Where to find it? – Plans are offered by nonprofit credit counseling agencies, who work with creditors to reduce interest rates and monthly payments to a manageable level. The program covers unsecured debts, like credit cards, but not secured debts, like houses or cars.
» Is it right for you? – Anyone in New York with high-interest credit card debt would be helped by this program. It lowers interest rates and it chips away at the amount owed until, in 3-5 years, you are free from the debt.
Debt Consolidation Loans
A debt consolidation loan (DCL) is one big loan New Yorkers use to pay off all debt on multiple credit cards. You make one monthly loan payment to the bank/credit union instead of 3-4 credit card payments. The interest rate depends on your credit score and whether you are willing to put up collateral, like your home or car, to back the loan.
Typically, people put up collateral and pay around 10%-12% for a DCL, compared to the 25% they likely are paying to credit card companies. This is a single payment to a single entity, at a lower interest rate that saves money and simplifies payments. It’s a big savings, which makes this look like a really good deal. And it can be.
However, New York consumers still owe the same amount to a bank. If you don’t stop using your credit cards, you must pay the debt consolidation loan and whatever you’re buying on credit cards. And that’s if you qualify (poor credit score could eliminate you) in the first place.
» Where to find it? – Most banks, credit unions and online lenders offer debt consolidation loans. Search for the lowest interest rate and repayment terms.
» Is it right for you? – It’s a wise option for anyone in New York with a good credit score (670 or higher) and the discipline to stop using credit cards. Generally, consolidation loans offer a lower interest rate than the onerous and burdensome rates charged by credit card companies.
Debt settlement allows New York consumers to settle the debt for less than what is owed. The payment usually is made in a lump-sum and comes after 2-3 years of saving for the lump sum and negotiating with one or more creditors to get them to agree to this.
As good as this sounds, it can be a long process, and it damages your credit report for seven years. Also, the IRS considers forgiven debt of more than $600 as income that must be declared on your tax return.
It works like this: You or a company you hire, must negotiate a payment amount agreeable to your creditors. You stop sending even minimum payments to the card companies, which means late fee penalties and interest are added to what’s owed. Instead, you pay into an escrow account. When that account gets big enough, the company doing the negotiating attempts to reach an agreement with the creditors. Be aware: Card companies do not like this form of debt relief and some refuse to deal with debt settlement companies.
While debt settlement companies like to brag that they can cut your credit card debt in half, that doesn’t account for their fees and late payment penalties and interest on their accounts. The benefit to the credit card company is that it receives some money, as opposed to little or nothing if you default.
» Where to find it? – For-profit companies specialize in this service. They negotiate on your behalf with the credit card companies, who must agree to the plan before it goes forward. The process usually takes 2-3 years and card companies are under no obligation to accept settlement offers.
» Is it right for you? – Anyone in New York with large amounts of debt who is desperate for a solution so they don’t have to declare bankruptcy should consider debt settlement. If you have $50,000 in credit card debt – two million American consumers do – getting it knocked down to $25,000 sounds pretty good.
Nonprofit Debt Settlement
Nonprofit debt settlement is a new program created by nonprofit credit counseling agencies and the lure is the same as traditional debt settlement – New York consumers will pay only 50%-60% of what they owe. How that happens is completely different from for-profit debt settlement companies.
Instead of long negotiations, the lenders agree to the terms upfront. Rules that must be followed include the consumer hasn’t made a payment in 180 days, and must agree to make fixed payments for 36 months. You can pay off early, but there are no extensions and all payments must be made on time or the program is canceled.
The benefit to the consumer is that there is 0% interest charged during the 36-month repayment time.
» Where to find it? – The program started in 2021, so only a few nonprofit credit counseling agencies offer the program and only a few credit card companies and banks participate. Nonprofit credit counseling agencies are certified and accredited by the National Foundation for Credit Counseling. Federal law requires the agency act in the client’s best interest.
» Is it right for you? – This is for New Yorkers who face overwhelming credit card bills but lack the income to pay them off. You won’t have to pay any interest on the debt, as long as you keep up with the 36 monthly payments it takes to get through the program.
Bankruptcy is painful, but for some New Yorkers, it might be the best solution available. It gives you a second chance to get your finances in order, and can be done without losing many of your possessions, including your home.
There are two major types of bankruptcy, Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, non-exempt assets are sold by a trustee appointed by the court and the money is used to pay off debts. Key assets are exempt from this process, notably your home, car, personal items needed for work, pensions and Social Security.
In Chapter 13 bankruptcy, you keep your assets in exchange for making regular payments to the trustee to pay down debt over a 3-5 year span.
The consequences for bankruptcy are significant. Your credit score may drop 100-200 points. Bankruptcy stays on your credit report for 7-10 years, making it more difficult to get credit for a home or car loan in the future.
» Where to find it? – Bankruptcy attorneys in New York are a must to get through this process successfully. He or she knows the ins and outs of the system and can protect you, your family and your assets throughout the process.
» Is it right for you? – Look at your income and expenses. If you can’t figure how to pay off all your debts in five years, bankruptcy might be the best debt-relief option available. It’s always best to try nonprofit counseling, debt management, debt settlement or debt consolidation before bankruptcy, but if those are not for you, bankruptcy is the final resort.
Statute of Limitations in New York
Thanks to a law passed in 2021, the statute of limitations of debt in New York is three years, which means that’s how much time a debt collector has to file a lawsuit to recover the debt through the court system. The statute of limitations used to be six years. The law also requires that a notice be mailed to the defendants in consumer credit actions by the clerk of the court, ensuring that defendants are given notice of the lawsuit.
Debt Collection Laws in New York
New York law prohibits creditors (and their agents) from telling your employer the nature of your debt before obtaining a judgment against you; threatening to take an action that it cannot undertake; threatening to collect a fee more than the debt you owe, communicating with you in a way that simulates a judicial process or appears to be authorized by a governmental entity’, or contacting you or a family member so frequently or at such odd hours that it constitutes debt collection harassment.
More Debt Statistics in New York
Except for sluggish employment numbers, New York’s situation looks solid financially, with few bankruptcies and low household debt.
- Mortgage debt: New York ranked 10th nationally with an average mortgage debt of $240,795 in 2021.
- Household debt: New York had the nation’s second-lowest household debt-to-income ratio (0.93) in 2021.
- Bankruptcies: New York has the ninth lowest rate of bankruptcies per 1,000 residents (0.73) in 2020.
- Median income: New York is 21st in median household income ($72,752).
- Unemployment rate: New York had the nation’s sixth-highest unemployment rate (5.4%) in December 2021.
About The Author
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
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