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Debt Consolidation Ny - How Debt Consolidation Works In NY

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While debt consolidation in ny state carries some consumer protections, prospective clients should weigh the advantages and disadvantages of debt consolidation carefully.

Debt consolidation is a payment arrangement whereby all outstanding loans are folded into one larger loan. You are borrowing money to pay off the money you have already borrowed, in other words. Sometimes this can work to your advantage: keeping track of one monthly loan is certainly more convenient than paying half a dozen smaller monthly loans, and in cases where you’re able to negotiate a lower interest rate or a fixed interest rate, it may make your debt more serviceable. In situations where the debt consolidation is made against collateral, it may make sense to enter into this pay arrangement — so long as you keep to it without imperiling your property: the interest charged on secured loans is lower than the interest charged on unsecured loans since the risk to the lender is less.

Debt consolidation seems most attractive when it helps to pay down credit card debt. In the early part of the past decade, millions of Americans, unable to resist the allure of buying on credit, found themselves spending an increasingly large portion of their monthly incomes servicing credit card debt.

Credit card debt is unsecured debt carrying an interest rate of anywhere between 7% and 36%, typically much higher than what you would pay on an unsecured loan from a bank. The lower your credit rating, the higher the interest rate you will be charged for carrying credit card debt, and people considering debt consolidation tend to be people with poor credit ratings.

In the second half of the last decade, seemingly overnight, the debt consolidation industry sprang up, promising millions of Americans a way to get out from a burden of debt that was threatening to overwhelm them. The industry was largely unregulated, and many unscrupulous companies promised far more than they could deliver.

The fact is if you’re a credit risk to a credit card company, you will be a credit risk to a debt consolidation company – and while the monthly amount you end up paying may be lower, the interest you pay on your loan could be as high or higher than what you were paying before. Debt consolidation companies often provide other services as well, including budget planning, credit counseling and negotiating on your behalf with creditors to lower your debt principal. Many debt consolidation companies implement a monthly fee for these additional services that can be as high as 10% of your monthly payment. What many consumers do not realize is that most creditors will be willing to renegotiate the amount they’re owed without the intermediary of a debt consolidation company.

Debt consolidation in ny state, however, is subject to certain consumer protections. First of all, only nonprofit corporations licensed by the Department of Banking or attorneys can represent themselves as budget planners in New York. Nonprofit does not mean these companies’ services are free of course, nor does it necessarily mean the companies are operating ethically in their clients’ best interests. However nonprofit companies frequently have fewer incentives to take advantage of their clientele.

Secondly, debt consolidation in ny state offering credit repair services are prohibited from charging consultation fees or any other type of advanced payments for services that have not yet been delivered. Credit repair services are activities that attempt to remove negative information from credit reports. While credit reports do occasionally contain misinformation, there is no legal way to remove negative information that is accurate and millions of consumers with poor credit histories end up losing money every year to debt consolidation companies that promise otherwise.

In the final analysis, the real problem with debt consolidation may be that it has no rehabilitative effect on the underlying behaviors that led clients to a financial crisis in the first place. If anything, debt consolidation reinforces those behaviors since its underlying assumption appears to be that you can get out of debt by borrowing money. The most valuable service performed by any debt consolidation company may be the credit counseling they provide you with as an additional service – because if you follow those guidelines and avoid making poor credit decisions in the future, you will never need the services of a debt consolidation company again.

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