The first rule of personal financial management is to establish a realistic budget, and keep your spending within it. Some people get into financial difficulty because they never set up a budget in the first place, or if they do, they lack the personal discipline to follow it. Other people who have a reasonable budget, and the discipline to live within it, still get into stressful financial conditions because of unexpected changes to either income or expenses. Whatever the cause of the problem, when debts begin to spiral beyond available income, the result can be extremely stressful, and can be damaging to important family relationships. In some cases, debt consolidation programs can provide an important first step in restoring financial equilibrium and quality of life.
What Are Debt Consolidation Programs?
Debt consolidation programs generally involve a third party who works with you to understand the causes and extent of your debt. If a major cause of your debt problem can be traced to failure to develop a realistic budget, which will be the first item on a reputable debt consolidator’s agenda. If you already have a budget, the debt consolidator will review it with you to make sure it is still reasonable, given your current financial conditions. After determining how much debt repayment is manageable within your monthly budget, a debt consolidator will attempt to negotiate a payment plan for each of your creditors so that the total fits within your budget. You will then make a single regular payment to the debt consolidator, who will then send the agreed upon payments to your creditors.
New York State Debt Consolidation Law
New York state law requires that debt consolidators be either a non-profit organization licensed by the New York State Department of Banking or an attorney licensed to practice in the state.
Some legally licensed debt consolidation programs exist within companies that also offer a variety of other regulated services. These may include credit repair services, mortgage renegotiations, and bankruptcy filings. If simple debt consolidation is what you are seeking, do not allow yourself to be sold other services unless and until you thoroughly understand both the regulations covering those services, and their appropriateness to your individual circumstances.
Finding The Right New York State Debt Consolidation Program for You
If you think that a debt consolidation program could be a solution to your debt problems, choosing the right program from the many available is the first important step.
The initial steps for finding the right New York State Debt Consolidation Program for you include:
- Assemble a list of at least five debt consolidation companies in your area that are recommended by national accrediting organizations such as the National Foundation for Consumer Credit (NFCC) or the Consumer Credit Counseling Service (CCCS). You can call or write either organization directly or enter your zip code into their web sites for a list of accredited debt consolidation organizations near you.
- Double check that list by checking with your local Better Business Bureau for evidence of excessive local complaints.
- Physically visit at least two or three potential service providers. Ask each one how long they have been in business at that location.
- Pick up a brochure listing the services provided. The brochure should include a fee schedule and a disclosure statement outlining the risks of debt consolidation, including possible impacts on credit scores, and the fact that the use of a debt consolidation loan may actually increase total indebtedness.
Warning Signs To Watch For Include:
- Any evidence of high pressure sales tactics such as requiring you to sign a contract by a certain date to take advantage of better debt consolidation terms
- Promises or guarantees of specific outcomes
- Inability or unwillingness to provide a clear fee schedule
- Failure to provide clear and specific disclosure regarding potential downsides of debt consolidation
- Take extra care with firms that are just starting out in business. Being new does not mean a company cannot provide quality service. On the other hand, it is well to remember that the debt consolidation business can be very profitable, and has always attracted its share of unscrupulous operators. It may take some time for regulators and accrediting organizations to run them out of business.
When considering a New York debt consolidation program, always keep in mind that:
- You may be able to work out a repayment plan you can live with on your own by contacting your creditors yourself, and explaining your circumstances. If you can do so, you will probably end up dollars ahead.
- All legitimate New York State debt consolidators begin by examining the causes and extent of your debt, and working with you to establish a budget that leaves room for both paying down consolidated debt, and meeting normal living expenses.
- Living within the newly established budget may be painful, but is essential to making a debt consolidation process work over the long run.
- Failure to live within the budget may make you more comfortable for months or even years, but in the end, you face the risk of being saddled with a debt burden larger and more painful than the one you began with.