Advertiser Disclosure

Mortgage, Pay Down My Debt

What to Know Before Getting Pre-Approved for a Mortgage

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


Thanks to coming of age right as the stock, housing, and job markets were coming crashing down, members of the millennial generation learned quite a few lessons about living within our means and using caution when feeling out serious financial situations.

While we may still have a few things to learn – like the importance of investing wisely rather than hoarding savings in cash – Gen Y has been hesitant to make the same mistakes from previous generations.

One major milestone millennials have largely held off on: buying a home. Gen Y hasn’t been the home-buying demographic many economists were hoping they’d be, and little wonder. A group of people already saddled with heavy student loan debt loads is unlikely to jump at the chance to sign up for a 30-year debt repayment obligation.

But that may be changing as more and more members of this generation reach their late 20s and early 30s. As more millennials start house hunting – and thinking about applying for a loan that may even eclipse their student loan debts – it’s important to understand what you need to know before getting pre-approved for a mortgage.

Speaking from Experience

Many of my fellow millennials have held off home ownership and prefer to rent their living space instead. I’m a bit of an outlier.

I bought my first home at 22. At 25, I’m in the process of selling that home for a profit and buying my second. (The main reason I’m in this position, person reading this in Chicago, NYC, or San Francisco, is because I chose to live in the American South. Real estate prices and property taxes are considerably lower here than other areas of the country.)

Going through the mortgage loan application process for the second time makes me want to share my experience and knowledge with other Gen Yers who may start to consider purchasing their first home in the next few years.

Get Ready Before Approaching a Lender

The best thing you can do to ensure a smooth loan application process from start to finish is to prepare yourself before you even get pre-approved. That means understanding what kind of real estate you can truly afford, what a lender will look for when you ask for pre-approval, and what you’ll need to provide once you find a home and secure a contract on the property.

Not All Mortgage Companies Are The Same

The majority of mortgages in America are purchased by Fannie Mae, Freddie Mac or the FHA. These agencies set the minimum criteria required for the loan – but the exact criteria can vary by lender.

A good place to start is LendingTree. Over 400 mortgage lenders participate in LendingTree’s mortgage shopping tool. With one short online form, you can get matched to lenders who want your business.



on LendingTree’s secure website

NMLS #1136 Terms & Conditions Apply

LendingTree is our parent company

What Can You Really Afford?

The most important thing to understand with mortgages is that a lender will almost always provide you a larger loan than you should reasonably accept. Despite the housing bubble that imploded starting in 2008, despite new federal laws introduced in 2014 intended to hold lenders more responsible for the loans the underwrote, the guidelines still allow most people to take out loans that are far larger than they should be.

I’ll give you a personal example. My current mortgage payment, which includes principle, interest, taxes, and insurance, is $1,013 per month. In looking for a new home, I wanted to make sure I stuck close to this number.

Putting down a 20% down payment meant my comfort zone ended at a purchase price of about $260,000 – because with 80% of that amount financed, my monthly payments would work out to be about $1,114.

But the lender’s online mortgage calculator, based on my income and my assets, told me I “could afford” a $600,000 house. Do you see the problem with online mortgage calculators?

You need to look at a few things to determine what you can truly afford before house hunting:

  • The list price of the home
  • The estimated property taxes on the home
  • Any monthly or annual dues, like HOA fees
  • How much cash you’ll put down on the home (in other words, how much of the purchase price you’ll finance)

While lenders will provide loans with various percentages of cash down on the purchase, in most cases putting down 20% is a smart move. The less you put down in cash on a property, the higher your monthly mortgage payment will be.

If you put down less than 20%, you’ll also tack on a private mortgage insurance charge (PMI) which will mean paying an extra $50 to $300 per month (depending on your down payment and the purchase price of the home).

What You Need to Provide to Get Pre-Approved

Once you understand what you can reasonably afford to repay on your loan each month, you need to check in on your income, assets, debts, and credit score. All of these factors impact your pre-approval and your loan process.

In short, a lender wants to determine your:

  • Debt to income ratio
  • Income and reasonable ability to repay a loan
  • Credit score

A lender will run a hard inquiry on your credit to pull your FICO score. This helps them determine how much of a risk you may be to default on the loan, and influences the interest rate the lender will offer you. It is a good idea to shop around with multiple lenders.

When you go through the pre-approval process, you need to know how much income, cash, and invested assets you have, and the source for each. (For example, you need to say you make $X amount per year at X Company. You also need to explain your employment status.)

You also need to report any debts or liabilities you have, which would include things like credit card payments, a car loan, or student loan debt.

Don’t even thinking about fudging the numbers here. Although the information you provide is good enough for the pre-approval process, you’ll have to verify every tidbit you gave the lender once you start your loan process.

Your finances – meaning your bank accounts, investment accounts, and other assets – will be closely scrutinized once you actually start the loan process. You’ll need to provide an explanation for any large or “suspicious” transactions, and in most cases you won’t be allowed to borrow cash (even from a friend or family member) for your down payment or to meet asset requirements.

Get Your Finances and Your Credit in Order 

That’s what you’ll need to provide for your pre-approval. But before you call up a lender and ask for that qualification, take a look at the state of your finances and your credit.

You want to ensure you can prove you’ve been gainfully employed for at least a few months; most lenders want to see 30 consecutive days worth of paystubs, and it’s always advantageous to have more. If you’ve had some trouble keeping a regular income or job, it might be best to hold off on the house search until your earnings are more stable.

You also want to take a look at your credit history and your credit score. Many credit cards provide you with your FICO score on each statement. Tools Quizzle or Credit Karma can give you an estimate so you have a good idea what your score looks like.

Discover FICO

If your score is on the low end, don’t panic. You may still be pre-approved and qualify for a loan, but you’ll pay a higher interest rate.

You can also take steps to help boost that credit score before you ask for pre-approval:

  • If you have any debt, ensure you’re making all payments in full and on time.
  • If you use a credit card, don’t let balances roll over. Again, pay in full and on time.
  • Don’t open new lines of credit immediately before asking for pre-approval – and don’t close old accounts, either.
  • Avoid making large purchases on credit cards, or using the maximum amount of credit available to you before paying off your card (even if you do pay that balance off in full and on time).

It may take a few months before your credit score starts working its way to higher numbers. Stick with these actions and stay consistent. You’ll be rewarded with a better score and a lower interest rate when you do ask for pre-approval – which means you’ll pay less over time in interest.

The Consumer Finance Protection Bureau (CFPB) offers an interactive tool to allow you to check mortgage rates based on credit score range. Based on research using the tool, 740 or higher is the ideal credit score in order to receive the lowest interest rates. If you drop below a 620, then it will become very difficult to qualify for a mortgage.

Let’s say you’re looking for a $200,000 home in North Carolina. You can afford a 20% down payment of $40,000 on a 30-year fixed mortgage.

Mortgage rates

You could save up to $12,305 by applying for a mortgage with a credit score of 740 or higher. The numbers above are also best case scenario mortgage rates for those with lower credit scores. Scores within the 680 – 699 range would be more likely to receive an APR of 4.125%, which would cost $119,158 over 30 years.

Find a Reputable Lender

You’ll also want to ensure you’re choosing a good, reputable lender. Mortgages make lenders money (from the interest you’re paying) so they have a vested interest in getting your business. Unfortunately, not all lenders are created equal. It pays to do your homework.

In addition, ask a financial advisor, accountant, or attorney for a recommendation to get you started. You can also ask family and friends who originated their mortgage loan, and ask about the experience they had with that company.

Reputable lenders will provide you with a Good Faith Estimate and paperwork that explains the loan process, your rights and obligations, and “truth in lending.” You can be sure to see if you’re getting the lowest rates in your state by using the CFPB tool to check mortgage options. If you are struggling to find a low interest rate, look at Pentagon Federal Credit Union's rates. Anyone can join this credit union and it often offers some of the lowest interest rates to eligible borrowers.

NC mortgage data
Image taken from CFPB

Bottom Line: Research and Ask Questions

Taking out a mortgage is a document- and time-intensive process. And you don’t need me to tell you that a hundred thousand dollar (or more) loan is a huge financial commitment.

The best thing you can do for yourself before even looking at a real estate listing is to ask questions, seek out answers, and do your research. If you don’t understand something, speak up.

Talk with financial professionals first, and speak with friends and family who already went through this process. And if the lender you want to work with can’t or won’t answer, look for another service provider to secure your loan.



on LendingTree’s secure website

NMLS #1136 Terms & Conditions Apply

LendingTree is our parent company

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kali Hawlk
Kali Hawlk |

Kali Hawlk is a writer at MagnifyMoney. You can email Kali at

TAGS: , , ,

By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Advertiser Disclosure

Pay Down My Debt

What Happens to Debt After Death?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

managing debt at old age

Credit card debt is at an all-time high in the U.S. According to a 2018 study on credit cards by MagnifyMoney, the average American with a credit card has a balance of $6,348. And overall, Americans are carrying $687 billion in credit card debt from one month to the next.

With numbers like those, it’s likely that many people will die with at least some debt in their name. If you have credit cards, a mortgage, student loans, personal loans, medical bills and auto loans, will they just go away when you die? Or will your family be held responsible? That all depends.

What happens to your debt after death?

Untangling exactly what happens to debt after death is a little tricky. It depends on a number of factors, including:

  • The type of debt
  • Whether someone else is a co-signer or has joint ownership of the property securing the debt
  • Whether the deceased lives in a community property state
  • The laws of the state in which the person lived when they died

Despite the potential variations, according to Kristin N.G. Dzialo, an attorney and partner at the estate planning law firm Eckert Byrne LLC in Cambridge, Mass., some general concepts apply across the board.

“Debt is specific to the person and doesn’t die with them,” Dzialo said. “If someone co-signed the loan or was jointly or severally liable for the debt, then that other person may be 100% responsible for the debt when the other person passes away.”

Jointly and severally is a legal term that means two or more people are fully responsible for the debt. For example, if two people are jointly and severally liable for a mortgage and one dies, the other person becomes fully responsible for the mortgage debt; their liability isn’t limited to their half of the mortgage.

However, Dzialo noted, “if the debt is just in the decedent’s name alone, then no one else is technically responsible for the payment of that debt.”

But that doesn’t mean the debt just goes away — instead, it becomes the responsibility of the deceased person’s estate.

“If there are assets in the decedent’s estate to satisfy the debt then it should be paid,” said Dzialo. “However, whoever is handling the estate (a Personal Representative, Executor or Trustee) must verify that the debt was a legitimate debt of the decedent.”

What happens to credit cards, personal loans and medical bills?

Credit cards, personal loans, medical bills and utilities are unsecured debts — this means they’re not backed by an underlying asset. In most cases, if the estate does not have enough money to pay these debts, the creditor is out of luck. However, there are a few exceptions.

Someone else can be responsible for repaying these debts if:

  • They co-signed the loan application
  • They are the deceased person’s spouse in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin)
  • They are the deceased person’s spouse, and state law requires the spouse to pay certain kinds of debts, such as medical bills
  • They were legally responsible for resolving the estate and didn’t comply with the state’s probate laws

“In community property states, this is where it gets dicey,” said Beverly Harzog, a consumer finance analyst and credit card expert at U.S. News and World Report. Different states play by different rules, so it depends on the state and specific wording of the law. In community property states, it’s a good idea to talk to an attorney to make sure everything is handled properly.

What about mortgages, auto loans and student loan debt?

Mortgages and auto loans are of secured debts, meaning they are backed by collateral. Student loans are typically unsecured, but how they’re handled at death is a little different than other forms of unsecured debt.


When someone passes away with an outstanding mortgage, if there are no co-owners who are jointly and severally liable for the mortgage, no co-signers and the property is not located in a community property state, responsibility for paying off the mortgage won’t fall to anyone else. If nobody pays the mortgage, the bank will foreclose on the home.

However, a home is often one of the largest assets in an estate. If the home is worth more than the mortgage balance, the heirs of the deceased may want to work with the lender to resolve estate issues and avoid foreclosure.

Auto loans

Like a mortgage, an auto loan is secured by the vehicle itself. If there is no co-signer and the estate does not have enough money to pay off the auto loan and heirs do not want the vehicle, the lender can repossess the car to satisfy the debt. If heirs wish to keep the vehicle, they will need to pay off the loan balance.

Student loan debt

How student loan debt is handled at death depends on whether it’s a federal or private student loan.

Federal student loans are discharged once the loan servicer receives acceptable proof of death, such as an original death certificate, a certified copy of the death certificate, or a photocopy of one of those documents. This also applies to federal Parent PLUS loans if the parent or student on whose behalf the parent obtained the loan dies.

With private student loans, it’s a little trickier. Many issuers of private student loans will discharge the debt if the student dies; others won’t. If there is a co-signer on the loan, the co-signer may be responsible for the full balance.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), signed into law on May 24, 2018, provided some protections to student borrowers and co-signers. The law prohibits lenders from demanding the loan be paid in full when a co-signer dies and requires that a co-signer be released from their obligation within a reasonable timeframe after receiving notice of the borrower’s death. However, these rules take effect for new private student loans after Nov. 18, 2018, and do not apply retroactively, according to the National Association of Federally-Insured Credit Unions. So co-signers may still be on the hook for private student loans taken out before that date.

4 cases when someone might have to repay your debt

As we mentioned above, there are some cases in which someone else may have to repay your debt. Let’s look at those in more detail.

1. When you have a cosigner

If anyone has co-signed for a loan, they can be held responsible for the remaining debt when you die. This can include:

  • Private student loans taken out before Nov. 18, 2018
  • Auto loans
  • Mortgages
  • Credit cards
  • Personal loans
  • Line of credit

Note that the responsibility for repayment doesn’t apply to authorized users on a credit card. However, when the account owner dies, an authorized user must stop using the card. If they continue making new purchases after the account owner dies, they can become responsible for the entire balance, not just the amount charged after death.

2. When you live in a community property state

If you’re married and you live in a community property state, your spouse may be responsible for paying off the debt with community assets, like savings accounts, investments and physical assets.

Whether you live in one of the nine community property states or not, it’s a good idea to talk to an attorney if you are worried about leaving your spouse with debts they can’t afford to repay. “Some states aren’t community property states but act like it in certain areas,” said Harzog.

3. State law requires the family members to pay certain kinds of debt

Paying medical bills is typically the responsibility of the deceased person’s estate if the estate has enough assets to cover the debt, but some states have laws that make spouses or adult children responsible for paying their parent’s medical bills if the parent can’t pay and doesn’t qualify for Medicare.

However, these laws aren’t always enforced, and they may take the family member’s ability to pay into account. Again, if you’re concerned about burdening your family with medical debt after you die, talk to an attorney familiar with the laws in your state.

4. When the legally responsible person doesn’t comply with state probate laws

When a family member passes away, responsibility for preserving assets, paying debts and distributing the remaining assets to the heirs falls to a Personal Representative. That Personal Representative may be an executor named in the will or an administrator appointed by the court.

If the Personal Representative doesn’t comply with state law, they may become personally responsible for the estate’s unpaid debts. Examples include failing to pay estate taxes, making bad investments or giving assets away before creditors are paid.

3 ways to prep your finances in case of death

If you are worried about leaving a tangled net of debts to your family members when you die, there are steps you can take to ensure your finances are neatly tied up.

1. Have a will

“It’s important to have a will and have your affairs in order,” said Harzog. “Do this while you’re young. You’ll update throughout your life as things change, you get married and have kids, but stay on top of this.”

2. Minimize the debt you carry

Of course, the best way to ensure you aren’t leaving debts for your heirs to deal with is to stay out of debt in the first place.

“Pay your credit cards in full and on time,” said Harzog. “It’s hard enough on survivors without leaving debt behind.”

3. Organize your finances

If you died today, would anyone know what assets and debts you have? Where you bank or how to access your accounts and safety deposit box? Whether you have life insurance? Too often, family members have to spend hours sorting through paperwork trying to figure these things out.

For that reason, many experts recommend maintaining a financial information binder. This binder might include:

  • Account numbers and contact information for bank, brokerage and retirement accounts
  • Copies of your will, power of attorney or other legal and estate planning documents
  • Contact information for family members
  • Copies of loan statements, tax returns and other financial information
  • Copies of policies for auto, homeowners/renters, health, life, disability and long-term care insurance
  • An inventory of physical assets including jewelry, artwork, antiques and other valuables
  • Copies of birth certificates and other personal records
  • Copies of real estate deeds and titles to vehicles or boats
  • Statements for other retirement assets, such as pension benefits statements

The binder can be kept in a safe deposit box or fireproof box at home. Just make sure someone knows how to locate it in the event of your death.

Debt after death: FAQs

Coping with the death of a loved one is difficult enough without the added pressure of collection calls from creditors. Here are more questions and answers about what happens to debt after someone dies.

Your family may get calls from debt collectors after your death, even if your family has no obligation to pay off the debts you’ve accumulated.

“If the family member is not in a community property state and not a co-signer, they should let the debt collector know the person is deceased and they’re not liable,” Harzog noted. “If they keep calling you, get an attorney. Some people will pay just to make them go away, but you shouldn’t have to do that if you’re not responsible.”

When someone dies, creditors have a certain period of time to make a claim against the estate. That period of time varies from state to state.

In most states, the executor must post a notice to creditors in the newspaper shortly. The executor may also be required to send written notice to any known creditors. After receiving the notice, the creditors have anywhere from a couple months to a couple years to make their claim.

Again, it’s a good idea to talk to an attorney in your state to see how the law applies where you live.

When you pass away, the Personal Representative of your estate is tasked with selling assets to pay off debts before distributing any remaining assets to heirs — but not all assets are up for grabs. Life insurance and money in retirement accounts, such as 401(k)s and IRAs, with named beneficiaries can be transferred to beneficiaries without going through probate.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

How Much Does It Cost to File Bankruptcy?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

bankruptcy guide

There are few mandatory costs of filing for bankruptcy, but they add up. The major expenses you’ll have to budget for are court, attorney and counseling fees.The fees you pay will depend on a host of factors, including where you live, the assets you own and whether you choose to file Chapter 7 or Chapter 13 bankruptcy.

How much does it cost to file bankruptcy?

In Chapter 7 bankruptcy, a trustee sells off nonexempt assets (such as a second home, cars you don’t use for work, etc.) to settle your debts. After this, your remaining unpaid debts are discharged. Chapter 13 organizes your debts into a three- to five-year plan to repay some or all of your debts, and it generally lets you keep assets you could lose in a Chapter 7 filing. Both types of bankruptcy result in most, if not all, of your remaining debts being discharged. You can learn more about the detailed differences here.

Now, to the costs. The fees mentioned in this piece are accurate as the date of publishing.

Court fees

The court fees for Chapter 7 total $335, while filing for Chapter 13 costs $310. The total amount you pay consists of a filing fee, administrative fees and, if you file Chapter 7, a trustee fee. The filing fees are the same nationwide.

 Chapter 7Chapter 13

Filing fee



Administrative fee



Trustee fee



Total cost




Attorney fee

Beyond court fees, you’ll need to pay an attorney, which will make up the bulk of your bankruptcy expenses. The amount you will pay can vary greatly, from hundreds to thousands of dollars. The attorney’s bill will depend on factors such as your local laws, what type of bankruptcy you file and the attorney’s rates.

Local laws

Where you file for bankruptcy in the country may determine your starting point when budgeting for an attorney. For Chapter 13 filings, the court in each jurisdiction generally sets flat-rate attorneys fees referred to as “no-look” fees.

The fee is “presumed to be reasonable no matter what’s involved in the filing,” said Bob Drummond, the Chapter 13 trustee for the district of Montana. Drummond said more than half of U.S. districts have set no-look-fee thresholds, and the fee varies by district. You can check with your district court to find out if they have a no-look threshold.

The court must approve attorney fees in Chapter 13 filings unless they fall below the no-look amount or the district hasn’t set a no-look threshold. If an attorney charges a rate below the district’s no-look threshold, they don’t have to get the court’s approval. But if they want to charge above the threshold — for example, if they want to charge more for a complex case that will take a lot of their time — the attorney must submit a fee application.

Type of filing

The attorney fee will also vary by type of bankruptcy filing. “There is going to be regional variation, but I think it’s fair to say Chapter 7 is inherently cheaper than Chapter 13,” said John Colwell, president of the National Association of Consumer Bankruptcy Attorneys.

“Chapter 7 is quicker, cleaner [and] faster and therefore … less expensive, generally speaking. With Chapter 13, not only is the debtor in there for three years, four years, five years, but so is the lawyer,” Colwell said. Besides time spent, Colwell said the increased responsibility and liability a lawyer takes on in a Chapter 13 filing compared to a Chapter 7 filing contributes to the higher bill.


As far as an attorney’s experience factors into cost, Colwell recommends you don’t cut corners to save money.

“When you are shopping for a bankruptcy attorney, you want to look for the best you can afford,” Colwell said.

Colwell recommended shopping around and vetting an attorney before you decide on one. Ask about their track record in bankruptcy cases and why they lost cases — if they have lost any. Colwell advised you also check with organizations such as the Better Business Bureau to see the business’ rating and reviews. If you consider a lawyer based on a referral, ask the person who referred you any questions you might have.

When the attorney is paid

Attorneys involved in a Chapter 7 bankruptcy usually require upfront payment. If their pay becomes a debt due after the bankruptcy filing, it may be discharged and they might not get paid.

With Chapter 13 filings, the attorney may require you to pay some of their fee upfront, and they will generally allow you to pay the remaining amount through your monthly payments in the court-approved repayment plan.

Counseling fees

Regardless of what type of bankruptcy you elect, you must complete two rounds of counseling as part of the process.

You must complete pre-bankruptcy credit counseling within the 180 days before filing for bankruptcy, and it ranges from $10 to $50, depending on where you live.

The court also requires you to complete a post-bankruptcy debtor education course after the petition to discharge your debts. The post-bankruptcy debtor education course fee will likely cost between $50 and $100, depending on where you live.

If you are unable to afford the counseling fee, you can ask the counseling organization for a fee waiver before starting the session. You must complete the counseling with an organization approved by the U.S. Trustee program. You can find a list of approved credit counselors here and a list of approved debtor education counselors here.

Other associated costs

Aside from the standard fees mentioned above, other expenses may increase the cost of bankruptcy. Here are some extra costs that Colwell and Drummond said you might encounter:

  • Credit report: Your attorney may charge a fee (about $30 to $60) to pull your complete credit report.
  • Tax transcript: Your attorney may charge a fee ($10 to $20) to pull your tax transcript from the IRS.
  • Credit repair: Some law firms offer post-bankruptcy credit repair services (the fees vary).
  • Conversion fee: If your case is converted from Chapter 13 to Chapter 7, you must pay a $25 fee.
  • Adversary proceedings: An adversary proceeding is a case within bankruptcy court. An adversary proceeding may occur for various reasons, including anytime a creditor, spouse or other affected party challenges your bankruptcy case and requests to be exempted from the discharge. Generally, your lawyer must appear in court to defend you in an adversary proceeding and will bill you for it.
  • Showing up in court: If you have to show up in court and your lawyer has to be there with you, they will likely charge you an additional attorney fee. For example, in a Chapter 13 filing it may take more than one attempt to get your repayment plan confirmed by the court. Each time you try, your lawyer will need to be present.

Reducing the cost of filing for bankruptcy

Filing for bankruptcy can be expensive. On the bright side, there are a few things you can do to help reduce your cost of filing.

Court fee waivers

Those who may not be able to afford the full $335 associated with filing a Chapter 7 bankruptcy may qualify for a fee waiver. You must fill out an application to waive the Chapter 7 fee.

Waivers are generally not available for Chapter 13 cases, Drummond told MagnifyMoney.

“The reason we don’t see [waivers] as much in a Chapter 13 case is because you have to have income and the ability to make a plan payment,” Drummond said. “If they can do that, they probably have enough income to pay the filing fee, too.” Chapter 13 court fees can generally be paid in installments, described below.

Paying court fees in installments

In either a Chapter 7 or Chapter 13 filing, the debtor can file an application with the petition asking to pay the filing fee in installments. The debtor must propose an installment schedule, and the fee may be paid in up to four installments. When you submit the application, the budget included in your bankruptcy petition must justify your need to pay the court fees in installments.

Pro bono

If you don’t have the funds for a bankruptcy attorney, you may consider looking into pro bono services. There may be an organization in your state that offers pro bono legal services. The Montana Legal Services Association, the Consumer Bankruptcy Assistance Project’s Fresh Start Clinic in Philadelphia and the New York City Bankruptcy Assistance Project all offer pro bono help for Chapter 7 filings for eligible clients.

You can find a list of pro bono resources, compiled by the American College of Bankruptcy Foundation, here. You can also search for organizations that provide pro bono legal services on Pro Bono Net.

DIY (pro se)

You could also forgo an attorney and attempt to complete a bankruptcy filing on your own, but the experts told MagnifyMoney they wouldn’t recommend it.

“Sure you can file pro se. Do I advise that you do it? Hell no. Double hell no,” Colwell said. “The paperwork is extremely complex, and there are even attorneys that don’t file bankruptcy because they think they might screw something up.”

Drummond told MagnifyMoney that pro se cases are more likely to get dismissed or run into issues with assets, resulting in the debtor losing assets they wouldn’t have had they consulted with an attorney.

“In the long run, they may end up saving more money if they hired counsel than if they didn’t,” Drummond said.

Judgment proof

If you are elderly, disabled or a retiree, you may not need to file for bankruptcy at all, as you may be considered “judgment proof” or “collection proof.” That means even if your creditors tried to collect and sued you, they wouldn’t be able to collect because your retirement, Social Security or disability income may be exempt from collection. If you have a large asset such as a home, however, the creditor could place a lien on the property, which may pop up if you decide to sell the asset. Consult with an attorney to verify if you are judgment proof.

The bottom line

It will more than likely cost you hundreds to thousands of dollars to complete a bankruptcy filing, but the benefit of getting your debts discharged may make the cost worth it. The court and counseling fees are mandatory and fixed, for the most part, but you may have some flexibility when it comes to the bulk of your cost: budgeting for an attorney. It’s always worth it to do your due diligence — shop around, compare rates and see if you qualify for pro bono options before choosing counsel.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

Is Debt Consolidation a Good or Bad Idea? Here’s What to Consider

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

debt consolidation

Even though most people try to stay out of debt, sometimes it’s hard to avoid. Over time, you might start to accumulate a number of different loans that served different purposes. This is commonly seen with student loans. In order to afford an education, students may take out debt each year to pay for tuition and other costs.

However, this problem isn’t exclusive to those who owe student loans: in fact, many people run into the frustrating dilemma of having multiple consumer loans in repayment.

To clean up their repayment process — and to possibly get a better interest rate or repayment term — some people turn to debt consolidation. But is debt consolidation a good idea? And if so, when is it right for you?

What is debt consolidation?

Debt consolidation is a process that rolls all of your existing debt into one, convenient loan. This means you could go from having multiple loan payments from different lenders with different repayment terms, to having one payment each month with a single lender.

The debt consolidation loan (often a personal loan) is used to pay off all of your other loans. This can be viewed much like a balance transfer — you’re transferring the balance of all of your loans to one bigger loan.

The lender providing your loan typically provides you with a lump sum payment to repay all of your debt, or it works directly with your other lenders to pay off your loans for you as part of the consolidation process.

You can consolidate a wide range of debt types, including:

Debt consolidation can only really work if you can secure a personal loan with an interest rate that is lower than what you are currently paying on your debts. That way, you’ll save money on interest over time after consolidating.

Finding a lender can be difficult. You may consider local banks and credit unions. But online lenders may have better rates and terms. To help you shop lenders, consider LendingTree’s personal loan tool. Using the tool, you’ll enter some personal information plus what you’re looking for in a loan. Afterward, you’ll receive loan offers, which you can compare to find the best deal for your credit score.



Credit Req.

Minimum 500 FICO

Minimum Credit Score


24 to 60


Origination Fee



on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

When is debt consolidation a good idea?

Debt consolidation isn’t for everyone, but there are several scenarios where this course of action would make sense for your unique financial situation.

You have a high credit score that could secure you a lower interest rate.

If you’re considering debt consolidation, you’re looking to get a better deal on your new, consolidated loan than what you already have. If you’re paying high-interest debt (such as credit cards or payday loans), consolidating at a lower interest rate could save you money on interest. (Find out how to view your credit score here.)

You have an isolated reason for getting behind on your debt.

Sometimes life happens, and we end up with debts that are unavoidable in the moment. A medical emergency that your savings couldn’t totally cover is an excellent example of this type of unavoidable debt. If you’re working to put a plan in place to stay out of debt in the future and are looking to simplify your debt repayment, consolidation may be for you.

Your consolidated loan offers additional benefits.

This might mean a shorter repayment term or fewer fees to ensure you’re making the most out of a new loan.

You’re exhausted by tracking all of your different loans.

If you have a number of different loans and are running the risk of missing a payment or overpaying due to high interest, it might make sense to consolidate them all to simplify your financial life and help you pay down your debt more quickly.

When is debt consolidation a bad idea?

Although debt consolidation can be a huge help in many cases, there are certain situations where it doesn’t make sense to consolidate your debt.

You have a spending problem.

Debt consolidation shouldn’t be used as a method to free up more cash flow to continue spending. If you find that your debt is largely consumer debt, and that you have no intention of reevaluating your budget or your lifestyle to support your debt repayment journey, consolidation isn’t going to make things better — it’s just going to act as a short term fix to your lifestyle problem.

You’re digging yourself a deeper hole.

Although it’s commonly the case that a debt consolidation loan will come with better interest rates and repayment terms, this isn’t always true. If consolidating your debt is going to force you to repay your loans at a higher interest rate, you’re better off keeping your multiple loans (even if it’s frustrating to juggle them all simultaneously).

You have an average or below-average credit score.

The interest rate you’re able to secure is largely dependent on your credit score. If your score is less than stellar, you’ll have to pay close attention to what interest rate you’re offered, and whether it’s actually a better solution than simply staying the course and paying down your multiple debts.

You’re stuck with new fees.

Sometimes, debt consolidation services have an origination fee of between 1% to 8%. If your ultimate goal is to save money through debt consolidation, this may not work for you.

Don’t just assume that debt consolidation is the answer you’ve been looking for — do your research first. You might find that sticking with your numerous debts and paying them down at their reasonable interest rates makes the most sense until you’re able to get your spending habits in check, or until you’re able to raise your credit score by consistently paying them down.

What are the risks of debt consolidation?

There are several risks and downsides to debt consolidation that you need to be aware of:

It might damage your credit score.

When you first consolidate your debt, you may see a minor dip in your credit score: this is because the lender you’re applying with will do a hard credit inquiry after you fill out your application. If you apply with multiple lenders, multiple hard credit inquiries will push your credit score down. However, you can avoid this problem by getting pre-qualified with multiple lenders, and only filling out an official application with one of them to reduce the number of hard credit inquiries on your credit report.

You may be unable to continue to use lines of credit you previously had available.

By using a debt consolidation service, like a personal loan, your total credit utilization doesn’t go down. So, even though your credit card is magically paid off by your new consolidated loan, that doesn’t mean you get to start racking up more debt. Doing so will cause your credit score to go down, and you may end up in an even stickier situation than you were in before.

You may pay more interest over time.

You’ve likely been paying back your existing debts at a high interest rate for a given length of time. Sometimes, people pay back multiple debts for years before they consider consolidation. Then, when you apply for consolidation, they might extend your repayment term even further — meaning you’re technically paying “extra” interest for the convenience of consolidation. However, you can fix this problem by working to pay your debt back before your repayment period is up and, in turn, driving down your principal (and the total interest you have to pay).

You may have fees.

Some debt consolidation loans have origination fees to process your new loan. Watch these fees closely to make sure they’re not unreasonably high — if they are, consider looking into another debt consolidation method.

You may get a shortened timeline for repayment.

Debt consolidation isn’t usually intended to be a long-term solution. Instead, debt consolidators shorten your repayment timeline. This can be incredibly helpful if you’re looking to get out of debt quickly, but it also may mean higher monthly payments and an increased likelihood that you’ll default on your loan.

3 alternatives to debt consolidation

If you’ve looked into debt consolidation, and have determined it isn’t the right choice for you, you have several alternatives to consider.

  1. Home equity line of credit (HELOC). A HELOC is where you borrow money against the equity you’ve built up in your home. However, if you’re worried about being unable to repay the loan, you may want to select a different alternative option as your home is technically collateral if you’re unable to pay your HELOC. (Learn more about using home equity to consolidate debt here!)
  1. Balance transfer. A credit card balance transfer is often a great option for people looking to consolidate their credit card debt. Many credit card companies offer 0% interest for a set period of time, which means you could potentially knock down a notable portion of your debt principal before having to pay interest each month. Be sure to read the terms and conditions regarding any fees or deferred interest clauses. (Check out our pick for the best balance transfer credit cards.)
  2. Debt refinancing. If you’re more concerned about getting a lower interest rate on your loans but aren’t worried about managing multiple payments, refinancing might be an option to consider. Through refinancing, you’ll be able to apply for a lower interest rate through your existing lenders, based on your previous repayment history.

Make sure you look at all of your options when trying to consolidate your debt — you never know what you might find, or what’s going to work best for your long-term financial goals. If you do choose to pursue debt consolidation, make sure to shop around with different lenders. Being able to compare different interest rates, fees, and repayment terms, can help you ensure that you’re getting the best loan as you start to move toward debt free living.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dave Grant
Dave Grant |

Dave Grant is a writer at MagnifyMoney. You can email Dave at


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

Can You Be Arrested for Debt?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

dealing with debt

You’re in significant debt. The collection calls have started coming in, and letters seem to appear in your mailbox every day. Your debt is mounting, and the constant phone calls and letters are starting to make you nervous.

Can I be arrested for my debt? If this question has entered your mind more than once, take a deep breath and relax. Aside from a handful of extenuating circumstances (which we’ll cover below), you cannot be arrested for your debt.

Read on for everything you need to know about whether you can be arrested for debt and what you should do if a lender threatens to arrest you.

Can you be arrested for debt?

In short, the answer is no. You cannot be arrested for the debt you hold, whether it’s credit card debt, a personal loan, a medical bill, student loans, utility bills, a car loan or any other form of debt that is referred to as civil debt. You can be sued for your debt, but you cannot be arrested. It is illegal for lenders and debt collectors to threaten to arrest you for not paying back your debt.

“Debt collectors can’t threaten to arrest someone,” said Barry Coleman, vice president of counseling and education programs for the National Foundation for Credit Counseling. “They can’t make threats to intimidate people.”

There are a handful of situations, Coleman said, in which threatening to arrest someone can be a legal option. This would apply in rare cases in which the arrest would be related to something tangential to the debt — such as fraudulent activity, identity theft or defying a court order — but not the debt itself.

“We always say: If someone gets an order to appear in court, even if they know they legally owe that debt and they can’t pay it right then and there, show up in court,” Coleman said. “Because if you don’t, then you will face other consequences.”

Also, consumers can be arrested if they cheat on their taxes or don’t pay child support debt, according to Coleman. “Those types of debt are a little bit different,” he said.

What should I do if a lender threatens to arrest me?

A lender threatening to arrest a debtor violates the Federal Trade Commission’s Fair Debt Collection Practices Act (FDCPA), according to John Ulzheimer, founder of The Ulzheimer Group and a credit reporting expert who worked for FICO and Equifax.

“You’re not allowed to use abusive tactics to collect debt,” Ulzheimer said. “And certainly indicating or suggesting to somebody that they can go to jail if they don’t pay [their debts] is illegal.”

If a lender threatens to arrest you, there are a few things you can do. You can do nothing and hope the threats stop, Ulzheimer said. (It is wise to document the threats of arrest, however, in case you need to take future legal action against the lender or debt collector.)

You can also leverage your rights under the FDCPA and file a lawsuit against the debt collector for abusive debt collection practices.

Coleman adds that you can report the lender to the Consumer Financial Protection Bureau (CFPB), and someone with the bureau will follow up with you about the complaint.

“Both the [CFPB] and the Federal Trade Commission have authority to pursue action if a debt collector is threatening something that they can’t legally do,” Coleman said.

What can happen if I don’t pay back what I owe?

Consequences for not paying back debt vary by state, but there are some federal regulations on unpaid debt.

Although you cannot be arrested for your debt, there are a handful of other things that can happen. “There are a lot of bad things that can happen when you don’t pay your debt,” Ulzheimer said. “Nothing good comes from not paying your obligations, right?”

If you don’t pay back your debt, it will go into default. Once in default, creditors will typically try to collect the debt themselves, Ulzheimer said. Your credit report and score will be negatively affected, and you will likely receive phone calls and letters.

If you still don’t pay back your debt, the lender will likely sell your debt to a third-party collection agency or debt collector. “They will eventually get sick and tired of attempting to collect the debt and they will either sell the debt or consign the debt to a debt collector,” Ulzheimer said. “If the debt is large enough or if the debt collector chooses to, they can file a lawsuit against you.”

If a debt collector files a lawsuit against you, you should show up to court no matter what. If you don’t show up, the collector can get a default judgment against you.

Coleman said one potential repercussion of not paying back one’s debt is court-ordered wage garnishment. That means the debt collector can legally seize a portion of your paycheck before the money hits your bank account.

“Wage garnishment, I think, is probably the biggest repercussion of not paying a debt,” he said. “It is probably the biggest concern for folks that are behind on the debt and aren’t trying to work with that particular creditor or debt collector.”

How to fix your debts

If you’re struggling to pay back your debts, there are a handful of important steps you can take to get on solid financial footing.

1. Don’t ignore your lenders or debt collectors.

Even if you can’t afford to pay back your debts, one of the worst things you can do is avoid your lender or debt collector. Answer the lender or debt collector’s phone calls, and, of course, any court summons you receive.

“Consumers will want to be proactive and work with their creditors and any debt collectors when they owe debt to work out some sort of an arrangement to avoid it escalating and becoming an even bigger situation,” Coleman said.

2. Negotiate with your lenders.

Some consumers might not be aware of this, but you can negotiate your debts with your lenders. Contact your lender and explain your financial situation. Tell it that although you cannot repay the entire debt, you can pay X amount each month. If you have extenuating circumstances, such as the loss of a job, illness or a death in the family, tell the lender.

“If you don’t have the means to pay, just be honest and state that,” Coleman said. “If you can pay a little bit, offer to do that. If the lender says, ‘OK, I’ll accept this payment arrangement,’ just ask that it be in writing so that you have something to back that up.”

3. Seek help from a nonprofit credit counseling agency.

If you’re struggling to repay a significant amount of debt across multiple channels, consider contacting a nonprofit credit counseling agency. Counselors at these agencies can help you come up with a plan for repaying your debt and can negotiate with lenders on your behalf if necessary.

4. Consider using the debt snowball or debt avalanche method for repaying debt.

These are two common strategies consumers use to repay their debt. The debt snowball method involves paying back debts from smallest to largest, while the debt avalanche method involves paying back higher-interest debts first.

5. Consolidate your debt.

If you have multiple debts and are struggling to stay organized, consider taking out a debt consolidation loan (nonprofit credit counselors can help in this area). This involves consolidating all your debts and making one monthly payment that gets distributed among your various creditors. If you have a fair credit score, you may even be able to snag lower interest rates, which could save you money in the long term.



Credit Req.

Minimum 500 FICO

Minimum Credit Score


24 to 60


Origination Fee



on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

Although you cannot be arrested for debt, there are myriad consequences that can result from not paying back what you owe. Ignoring your debts or any court-ordered summons will only make your situation worse. Be as proactive as possible to avoid the repercussions of not repaying your debt.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Friedlander
Jamie Friedlander |

Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

Unsecured Debt vs. Secured Debt: What’s the Difference?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

handling debt

When talking about debt, it’s important to understand the two major forms: unsecured debt and secured debt. Knowing what types of debt you owe, and the differences between secured and unsecured debt, is crucial when it comes to personal finance. This article will define each type of debt, discuss the differences, highlight pros and cons and provide ways to manage it in your budget.

What is unsecured debt?

Unsecured debt is borrowed money that has no collateral — something pledged as security for repayment — attached in case the borrower defaults on the loan. If the borrower defaults on the debt, the bank or lender has nothing to take back as repayment for the debt. Interest rates are usually higher with unsecured loans because they are riskier for the lender.

Common forms of unsecured debt include:

  • Student loans: A student loan is money given by a financial institution or the federal government to a student to pay for advanced education. A student does not have to put down collateral in order to obtain a student loan.
  • Personal loans:Personal loans are another form of unsecured debt. An individual can take out a personal loan for a variety of financial reasons without having to put down collateral — like a home or car — in exchange for the initial loan.
  • Credit cards:Credit cards allow people to borrow money from the bank to make any purchase on credit, with the stipulation that you’ll pay the amount back within a certain period of time. If you pay the bank back in full within the appointed amount of time (no less than 21 days), you will not owe any interest or additional payments on the card. If you fail to pay off your debt during the grace period, you will owe interest money in addition to the original amount owed.

As with all things, there are pros and cons to unsecured debt.

Pros of unsecured debt

1. Unsecured debt is less risky for the borrower
Unsecured debt is less risky for the borrower and more risky for the lender. Because lenders do not have any collateral for your unsecured debt, you cannot lose any of your assets if you cannot make a payment. A lender is not able to take back the purchases you charged on your credit card, but there are other consequences to not repaying unsecured debt.

2. Unsecured debt could improve your credit score if paid in full
If borrowers are diligent about paying their monthly payments on time, this can improve their overall credit score. By regularly paying the debt in full, you’re proving that you are reliable, trustworthy and a safe bet for future loans.

3. Unsecured loans can be used at your discretion
Unsecured loans can be used to pay for a variety of items. Though debt like student loans is limited in its uses, borrowers can use personal loans or credit cards to pay for almost anything, including medical bills, home remodels or debt consolidation. These types of unsecured loans offer borrowers flexibility and more choices on how they use the money borrowed.

Cons of unsecured debt

1. Missed payments can negatively impact your credit
While paying an unsecured debt on time can improve your credit score, missing payments can negatively impact your credit. Lenders can report your failure to pay to a credit bureau, which can lower your credit score and make it more difficult to obtain loans in the future.

2. Unsecured debt can be reported to a debt collector
If you’re unable to pay back your unsecured debt, the lender will likely hire a debt collector to press you to pay back your debt. Debt collectors can aggressively hound you to receive payment for your unsecured debt, and failure to pay it back may also result in legal issues where you can be sued.

What is secured debt?

Secured debt is backed with or guaranteed by collateral and assets. Should a borrower default on a secured loan, the lender has the legal right to take said collateral as payback for the debt owed.

Common forms of secured debt are:

  • Mortgages: A mortgage is a loan from a bank or a mortgage lender that helps you finance the purchase of a home. Borrowers acquire a mortgage knowing that if they default on their monthly payments, the bank can take the house from them as payment for the debt. The house is the collateral that secures the debt.
  • Vehicle loans: Like a mortgage, a loan for a car is a secured form of debt. Vehicle loans are money given to a borrower to put towards a vehicle. Should the borrower not make the required car payment, the lender can repossess the car to satisfy the debt.
  • Car title loans: Once you have paid off your vehicle loan in full, you will own the car outright and receive the car title. A car title can then be used as collateral for future loans. The borrower can give the lender the car title as an asset. Should the borrower default on said loan, they would not receive the car title back until the debt was repaid in full.

Pros of secured debt

1. Secured debt usually has lower interest rates
Secured debts are less risky for lenders because the loan is secured by an asset. If you don’t pay up, the lender can take your collateral to earn back the money it lost on their loan to you. Because the loan is a safer bet, banks and lenders usually offer better interest rates. Lower interest rates allow you to pay more to the principle each month, which in turn, allows you to pay off the loan faster.

For example, the average interest rate on a 30-year mortgage is 4.83% (as of Nov. 1 2018), according to Freddie Mac. In comparison, the interest rate on a personal loan can vary anywhere from 4.99% to 29.99%, according to Lending Tree, which owns Magnify Money.

2. Secured loans can be easier to obtain
Secured loans are a relatively safe option for lenders. By securing your loan with collateral, you’re telling the bank that if you default, they can take said collateral as payment.

Because of this, secured loans are often easier for borrowers to obtain. Unsecured loans are often dependent on your credit score, so not everyone can qualify. While credit score does play a role in obtaining any type of loan, secured loans may have less stringent requirements for borrowers to meet.

3. Secured debt allows you to build credit
When you pay your monthly mortgage or vehicle payment on time, you’re showing lenders that you are a reliable borrower. This in turn boosts your credit score and allows you to improve your credit for future loans.

Cons of secured debt

1. Failure to pay secured debts results in loss of assets
Unlike unsecured debt, failure to pay secured debts results in loss of your collateral. Should you miss payments on your mortgage or vehicle, the lender can foreclose on your home or repossess your car.

2. Default on secured loans can damage your credit
While paying your secured debt on time can build your credit and improve your credit score, failure to pay your secured debt can result in major damage to your credit and affect your ability to get a loan in the future. In addition to losing physical assets with a secured loan, you can also damage your credit score, which can have serious financial repercussions.

Which form of debt is better?

All debt — secured and unsecured — should be taken seriously. Mismanaged debt can negatively impact your credit score, affect your ability to get any kind of future loan and wreck your budget and personal finances.

Secured debt is necessary for obtaining a mortgage or a vehicle loan. You’ll often receive a lower interest rate and higher loan amount, but will have larger consequences — like losing your assets — for missing a payment or defaulting on the debt. Unsecured debt requires no up-front collateral, but failure to pay can result in battles with debt collectors and the courts, and can also damage your credit score and financial history.

Whether you’re paying off secured or unsecured debt, it’s important to ensure you’re making your monthly payments and paying them on time. Failure to pay off debt can result in unnecessary interest payments, loss of assets, damage to your credit score, financial stress and serious legal issues.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sage Evans
Sage Evans |

Sage Evans is a writer at MagnifyMoney. You can email Sage here


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

Are Balance Transfers the Best Way to Pay Off Debt?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

balance transfer

When you’re buried under a pile of debt, you’ll need to go beyond making the minimum payments if you hope to get debt-free as quickly as possible. And with interest rates on an upward swing, it may not be something you can afford to ignore.

This is where balance transfer credit cards come into play. Once you understand how they work, they can be a powerful tool that lets you temporarily pause your interest payments — and chip away at your principal balances faster.

MagnifyMoney tapped the experts to unpack everything you need to know about balance transfers. Here’s how to master the ins and outs of one of the most effective debt repayment options available.

What is a balance transfer?

It’s all in the name. A balance transfer involves taking one or more credit card balances and transferring them to a different card that has a lower interest rate. The ideal situation is to roll everything over to a card that has a 0% APR promotional period. This essentially eliminates the interest for a set period, giving you a chance to catch your breath and, if all goes according to plan, pay off the balance before the interest kicks in.

To pull off a balance transfer, you can either open a new low- or no-interest credit card, or look to your existing cards that you’ve already paid off to see if there are any deals to be had. According to David Metzger, a Chicago-based certified financial planner and founder of Onyx Wealth Management, it isn’t uncommon to find 0% interest rate promotions on your existing cards.

“If you’ve got multiple cards, chances are you get offers like that all the time,” he said.

If not, don’t be afraid to reach out to your credit card companies to see if they have any deals up for grabs. If they don’t, or you don’t have the credit capacity on your existing cards, you can shop online for a balance transfer card.

As for the promotional introductory period, it varies from offer to offer, with the best rates and terms generally going to those who’ve got excellent credit. Those with a minimum credit score of 680 can expect transfer periods that last anywhere from 12 to 21 months. Keep in mind that some offers tack on a balance transfer fee to the tune of 0% to 4%, so it pays to read the fine print.

How balance transfers can save you money

Temporarily eliminating your interest rate can translate to pretty significant savings. Let’s say you have the following open balances, and you pay $100 per month on each:

  • $1,000 with 18.00% APR
  • $2,000 with 16.00% APR
  • $800 with 20.00% APR

If you stay on this path, you’ll shell out $500 in interest and get out of debt in 24 months. But a balance transfer with 0% APR for 15 months will keep that $500 in your pocket. Your monthly payment won’t change, and you’ll also pay off the balance nine months faster. From a numbers-and-sense perspective, it’s a no-brainer.

“You can save a ridiculous amount in interest payments, but the name of the game is to more or less come close to paying the balance off completely before that transition over to that higher interest rate,” Lucas Casarez, a Fort Collins, Colo.-based certified financial planner and founder of Level Up Financial Planning, told MagnifyMoney.

Applying for a balance transfer credit card

As Metzger mentioned, turn first to any existing credit cards that can absorb some new debt. Are there any balance transfer offers available? If not, the best place to search and compare balance transfer offers is online. According to Casarez, the following factors play the biggest role in the kinds of deals for which you’ll be eligible:

  • A good credit score: You won’t qualify for much if your credit score is below 680. At the time of this writing, the longest promo periods with 0% interest were reserved for this bunch. Why? A lower credit score is a red flag to credit card companies that you may be a risky borrower.
  • Reliable income: Your credit score doesn’t stand alone. “You could have the best credit score in the world, but lenders still want to know that you have the ability to pay your bill,” Casarez said.

He adds that folks in retirement, for example, may have a tougher time qualifying for a worthwhile balance transfer since their money may come more from retirement accounts rather than Social Security or pensions. Casarez does clarify, however, that credit card companies typically want to approve you.

“These banks make a lot of money the longer that your current balance is at a higher interest rate,” he said.

Discover it® Balance Transfer


on Discover Bank’s secure website

Rates & Fees

Read Full Review

Discover it® Balance Transfer

Regular APR
13.99% - 24.99% Variable
Intro Purchase APR
0% for 6 Months
Intro BT APR
0% for 18 Months
Annual fee
Rewards Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Balance Transfer Fee
Credit required
Excellent/Good Credit

3 questions to ask before transferring your debt

If you’re looking to save money and get out of debt faster, balance transfers are a powerful weapon to have in your arsenal — if you know how to use them wisely. Here’s what to consider before giving it a go.

1. Do you understand why you’re in debt?

This strategy won’t work if you don’t get to the root of why you’re in debt to begin with. What kinds of purchases make up the bulk of your existing credit card statements? Whether they’re living expenses, splurges or surprise pop-up bills, it’s time to revisit your budget to prevent falling into the same patterns again. After your balance transfer is complete, seeing $0 balances on your old credit cards can create serious temptation.

“If you don’t have a plan, balance transfers may be something that allow you to spend even more money, so it could put you further into the hole,” Casarez said. “It’s like a hot potato you’re passing around, but there’s going to come a day when you have to pay up.”

Having emergency savings on hand provides an additional safety net because you won’t need a credit card to see you through your next unexpected bill. Our insiders recommend building a $1,000 mini-emergency fund while you’re paying off debt.

2. Can you pay off your debt before the introductory period ends?

Once your budget and emergency fund are in shape, it’s time to shop around online for balance transfer offers. Ones with the lowest transfer fees and longest 0% introductory periods are the best, but here’s the catch: This strategy only makes sense if you can pay off the balance before that period ends, at which point you’ll be slammed with interest charges on the remaining balance.

Standard interest rates after the introductory promo period ends are generally higher than other credit cards. And if you miss a payment, the credit card company may cancel your promo period.

3. Are you OK with taking a short-term credit hit?

Opening a new balance transfer card requires a hard credit inquiry, which will result in a short-term dip in your credit score. Your score may also take a small hit if the transfer itself uses up more than 30% of your new credit line. (How much you owe accounts for 30% of your FICO score.) But Metzger said it may be worth it if you’re ultimately eliminating high-interest debt faster.

“Your score will improve much faster than it would have had you not engaged in the strategy,” he said. “You take a small step backward for a huge step forward, if you’ve got the discipline to do it.”

Metzger does suggest using caution with balance transfers if you plan on financing a big purchase, such as a mortgage or car, within the next month or two. Depending on your financial health, slight fluctuations in your credit score could prevent you from getting the best interest rates on these purchases.

3 alternatives to a balance transfer

If a balance transfer isn’t in the cards for you right now, there are still plenty of viable ways to get out of debt as quickly as possible. Here are a few tried-and-true debt repayment methods you can put to use today.

1. Debt snowball method

The debt snowball approach prioritizes your lowest balance first, regardless of your interest rates. You make the minimum payments on all your debts while hitting the lowest balance the hardest with any extra income you can spare. Once it’s paid off, you take whatever you were spending there and roll it over to the next lowest balance. Keep on chugging along until all your balances are paid off.

“The nice thing about the debt snowball, and the reason that it tends to be the most effective way, is that you start to have those wins a lot faster when you’re focusing on those smaller balances,” Casarez said.

“You start to build up some momentum and confidence,” he added. “As you do that, you start to get a little bit more swagger and feel like you’re actually making progress and have more control over your financial situation than you thought.”

2. Debt avalanche method

This strategy puts your highest-interest balance above all others. When you compare it to the debt snowball method, it’s the fastest and cheapest way to get the job done, which is why Metzger said it makes the most sense.

“With that being said, people are quirky,” he added. “If paying down the lowest balance and snowballing it that way works for you, then by all means do it. The outcome is far more important than the path you take to get there.”

3. Debt Consolidation loan

Another way to tackle your debt is to consolidate it using a personal loan. Once you receive the loan amount, you use the funds to pay off all your debt, at which point you’ll have one new balance and monthly payment. This strategy is ideal for those who can lock down a lower interest rate. What’s more, personal loans often have fixed rates, monthly payments and repayment timelines, so it makes budgeting a whole lot easier.

And since it’s a lump-sum installment loan — not a revolving credit line in which you can charge and pay off as you go — using it to eliminate credit card debt should boost your credit score because you’re effectively using less available credit. Some personal loans do come with an origination fee, typically between 0% and 6%, so do the math to see if it’s the right debt consolidation method for you.

When shopping for a debt consolidation loan, it’s best to compare your option to make sure you get the one with the lowest interest rate. LendingTree, the parent company to MagnifyMoney, allows you to compare up to five lenders without affecting your credit score. Use our table below to get the best results!

Compare Debt Consolidation Loan Options

Which is the best way to pay off debt?

It all depends on your situation. If you’ve got a solid credit score and qualify for attractive balance transfer offers, it’s worth exploring — as long as you don’t charge new debt and you’ve got a plan in place for paying off the balance before the introductory period ends. When done right, balance transfers are great shortcuts that could save you a significant amount of time and money in the long run.

The debt snowball and avalanche methods are worthwhile alternatives for those who prefer to get out of debt the old-fashioned way. Meanwhile, a debt consolidation loan could pave the way for a locked-in lower interest rate. The main takeaway here is that you have multiple debt repayment options at your fingertips. They’re all, as the old saying goes, “Different paths up the same mountain.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

How to Recognize Debt Collection Scams

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

debt collection scams

If you are receiving calls from a debt collector threatening dire consequences if you don’t pay up now, you may be dealing with a scammer. Unfortunately, abusive tactics aren’t completely unheard of in the debt collection industry, so there’s a chance you could be speaking with a real debt collector, too.

The Federal Trade Commission (FTC) receives more complaints about debt collectors than it does about any other industry. To help weed out both scammers and bad apples, the agency enforced the Fair Debt Collection Practices Act (FDCPA), a law that prohibits abusive, deceptive or unfair debt collection practices and details your rights as a debtor. The FTC reports that in 2017, it obtained more than $64 million in judgments regarding FDCPA violations, and banned 13 companies and individuals from ever working in debt collection again.

Telling the difference between a scammer and a real debt collector isn’t always easy, but you can learn to notice the telltale signs of a scammer and which questions to ask to help you figure out if you’re dealing with a scammer or a real debt collector.

How a debt collection scam works

When a scammer posing as a debt collector calls you, their goal is to get your money quickly and directly, according to Melinda Opperman, vice president of

“Rather than try sophisticated identity theft or computer hacking schemes, [debt collection scammers] resort to old-fashioned fraud in an attempt to trick you into just handing them your funds,” said Opperman.

She said those with debt balances and less-than-perfect credit are the ideal victims for a debt collection scam. “Because people struggling with debt are vulnerable, the scammers reason that they will be more likely to pay,” said Opperman.

The scammer may threaten a debtor with consequences such as arrest or a lawsuit unless they pay up immediately. The debt collection cover helps scammers get away with it because a debtor might not find out whether the debt was resolved until much later, when it’d be impossible to track down the perpetrator.

But not every scammer is only looking to hit your wallet. “Some scammers don’t want your money, or at least not immediately. They want your personal information,” said Martin Lynch, education director at Agawam, Mass.-based Cambridge Credit Counseling. Acting as a debt collector gives a scam artist the leverage they need to intimidate stressed debtors into paying up or confirming their sensitive information without the debtor asking too many questions.

Lynch said a fraudster might ask the debtor to verify the type of information that a legitimate collector would already know, such as a Social Security number or driver’s license number. Once they’ve verified the information, they can sell the data or use it to open new accounts in your name.

7 ways to recognize a debt collection scam

A scammer’s tricks can be well thought out. The scammer may already know to whom you owe money and may use that to their advantage.

“Some scammers might purchase your personal financial info on the black market, and since the Equifax data breach exposed 143 million consumers, it’s nearly certain your information is available somewhere,” said Opperman. With that information, they can pose as one of your actual creditors, or a collector representing them.

“People are much more likely to fall for the scam if the fake collector knows the victim’s financial info,” said Opperman.

A scammer may also mimic common abuses real debt collection agencies have gotten in trouble for, such as threatening a lawsuit or collecting on expired debts. For those reasons, it may be tough at times to decipher whether or not you’re dealing with a scammer or a real debt collector.

1. You do not recognize the debt

If you don’t recognize the debt the caller is referring to, that could mean you’re on the phone with a scam artist. Don’t pay up simply because someone is telling you that you owe them money.

Under the FDCPA, you have the right to validate the debt. The law requires the collector follow up with you in writing with a validation notice within five days of first calling you.

Ask the caller for a copy of the validation letter they have to send you. The notice should include the amount owed, the creditor to whom the debt is owed and a description of your rights under the FDCPA. Verify the debt is legitimate, the amount is correct and that you are the person who owes the debt. You have up to 30 days from when the collector first contacts you to demand validation and dispute the debt in writing, or the debt will be assumed to be valid.

“This paperwork will weed out scammers because you’ll have their physical address and information about [the] legitimacy of the debt itself,” said Opperman. “Demand this in every case, whether you think the collector is a scammer or not. Legit collectors should have no trouble supplying you with proper debt validation, and scammers won’t even try.”

2. The caller refuses to reveal identifying information

If the caller is hesitant or refuses to give you information about themselves and their employer, they are likely a scammer.

Lynch recommended that you ask the caller for the name of the collector’s company, the caller’s name and their business telephone number. You can confirm that information online, or by checking with your state attorney general or secretary of state. You may ask for the company’s professional license number and check the company’s licensing status with your state regulator as well since many states require debt collectors be licensed.

If the caller isn’t willing to tell you the company’s contact information or you cannot verify the information, you may be speaking with a scammer. Cease communication with the caller and do not give them any money or information.

3. The caller demands payment right away

“Scammers will also demand payment right away,” said Opperman. That’s where threats play into the scam.

For example, a scammer may threaten harsh consequences if they don’t get a payment by the end of the day or within 24 hours.

“Real collectors know the debt isn’t going anywhere and will give you time to send them proper payment,” said Opperman.

4. The caller demands payment all at once

Lynch said that a scammer might try to get you to make all of the payments at once, instead of breaking it up into a payment arrangement, like some collectors may be willing to do. The scammer may request you pay them right at that moment over the phone or send the money using a wire transfer, so it gets to them quickly.

“They want as much of your money as they can get before you realize you’ve been had,” said Lynch.

5. The caller uses abusive language

If the caller starts to use abusive language to harass you into paying them right away or all at once, as mentioned above, they may be a scammer.

Under the FDCPA, it’s illegal for a collector to harass or abuse a debtor. For example, a debt collector cannot threaten violence or use profane language on a call with a debtor. They also cannot call your phone repeatedly with the intent to annoy, abuse or harass you.

Opperman said real debt collectors have knowledge of the FDCPA and know they will get in trouble if they are caught in violation of the law. But scammers often flagrantly violate the FDCPA and generally won’t be impressed if you mention your rights.

6. The caller threatens you with arrest or lawsuits

Under the FDCPA, a debt collector cannot use “false, deceptive, or misleading representation or means in connection with the collection of any debt.” That means they can’t use empty threats like that of a lawsuit, wage garnishment or an arrest to coerce you into paying up. Opperman told MagnifyMoney that most threats made over the phone are hollow.

“Any negative action a collector will take against you is something they will just do if they can. You won’t get a phone call warning you, you’ll be served with a lawsuit,” said Opperman.

If a collector threatens to have you arrested if you don’t pay immediately, Opperman said to remember: “The only debts that can land you in jail are unpaid child support or tax evasion — and those situations will involve a complicated legal process, not threats over the phone.”

7. The caller insists on being paid with gift cards or another unusual method

Another sign of a scam is if the caller insists on being paid in a particular, unusual method, like with Amazon gift cards or prepaid credit cards.

“Real collectors will take just about any form of payment they can get, but scammers want something that can’t be canceled or traced,” said Opperman.

Another payment-related red flag is if the caller requests you tell them the gift card or prepaid credit card information over the phone, as opposed to mailing the cards to a physical address. If they are unwilling to give you a physical address to mail in your payment, they are likely scammers.

What to do if you suspect a scammer is on the line

If you think the debt collection calls you’ve been receiving are fraudulent, you can follow the following steps to protect yourself from financial fraud and take action against the fraudster.

  1. Gather information: Get all of the information you can about the debt and the debt collector. Ask for a copy of the validation notice they are required to send you under the FDCPA. Again, they have up to five days to send you a validation letter. Ask the caller for their name, and the name, phone number and address of their employer. Record everything so that you can confirm the details later. If they won’t give you this information, that’s a red flag.
  2. Protect your sensitive information: If you think you’re dealing with a scammer, you should do your due diligence to protect yourself from financial fraud. Take care not to give the scammer any sensitive information such as your Social Security number, address or bank account, credit or debit card information. You can further protect yourself by placing a free credit freeze on your credit report with all three reporting bureaus so that a fraudster won’t be successful if they try to open a new account using your information.
  3. Contact the original creditor: If the call is about a debt that you do recognize, call the original creditor to confirm the details of the account in question. If the debt was actually sold to a collections agency, ask for the agency’s contact information and compare it with the information you have about the agency that’s been allegedly attempting to collect on the debt.
  4. Ignore the calls: If you are confident the caller is a fraudster, stop answering their calls as there is no need for you to continue communication with them once you’re aware of the scam. If you answer and choose to engage in conversation, there is a chance the scammer may use other tricks to get you to spill sensitive information.
  5. File a complaint: If you think you’re the victim of a debt collection scam, you should submit a complaint with the Consumer Financial Protection Bureau and the FTC. You may also report the scam to your state’s attorney general’s office with information about the suspicious caller.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

What To Do If You’re Being Sued For Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

debt lawsuit

If you’ve stopped making payments on a debt, and it’s been in collections for a while — and especially if you’ve been avoiding the debt collector’s attempts to contact you — it’s possible that you may get sued for that debt.

Not all unpaid debts will end in a lawsuit. Debt collectors are able to continue collection actions indefinitely, and only in certain cases will a lawsuit ever materialize.

“It’s always going to be a cost-benefit analysis by the creditor,” said Ed Boltz, a consumer debtor’s attorney in North Carolina. “The bigger the debt, the more likely it is that you’ll be sued. And when you owe money to an individual or small business, you are far more likely to be sued because they tend to take that debt personally.”

Being sued for debt can be a scary and intimidating process, but this article will help you understand how it works and what you can do to contest the charges.

What happens when you’re sued for debt

One of the keys to successfully challenging a lawsuit is simply understanding how the process works so that you know what to expect and how to respond.

The bad news is that you’ll have to do some leg work to get up to speed on the particulars for your state, as the specifics vary based on where you live.

“The details depend tremendously on what state you’re in,” said Boltz. “The process in North Carolina is different than the process in South Carolina, which is different than it is in California.”

The good news is that there are a few general steps that apply to most situations.

Timeline: When you’re sued for debt

What happens

What it means

Creditor files a complaint with the court

This officially begins the lawsuit. The complaint explains the charges against you.

You receive a summons and the complaint

The summons provides a deadline for your response.

You file an answer

This begins your defense and avoids a default judgment against you.

There is a trial or the case is dropped

The creditor can either drop the lawsuit or it will go to trial, typically in small claims court.

A judgment is made

The judge makes a decision, which will either relieve your responsibility or allow the creditor to begin collection actions.

Creditor files a complaint with the court

The lawsuit starts when the creditor files a complaint, typically in state court.

“Credit card debt, medical bills, those sorts of debt are sued in state courts,” said Boltz. “People are very rarely sued for debt in federal court.”

The complaint primarily explains who the creditor is suing, what debt they’re suing for, and how much they think you owe.

You receive a summons and the complaint

Once the complaint is filed, you’ll receive both the complaint and a summons that typically requires you to respond within 30 days. According to Boltz, these are usually mailed to you, though they can sometimes be delivered by a law enforcement officer or process server.

Boltz also warned that trying to avoid the delivery of these notices is a bad idea.

“A lot of people, if they’re sent the summons by certified mail, will attempt to ignore it and refuse to accept their mail,” said Boltz. “But all that ends up happening is that they have to get service to you through some other means, whether that means sending someone to your home or work or even putting it in the newspaper, all of which can be even more embarrassing.”

You file an answer

Once you receive the summons, Boltz said, you typically have 30 days to file an answer with the option to request an extension for another 30 days.

You will now have your chance to respond to the creditor’s claims and begin mounting a defense, and it’s at this point that Boltz recommends consulting with an attorney.

“The first thing you should do when you’re sued is go talk to a lawyer,” said Boltz. “That’s the best way to find out what your rights are and whether you have valid defenses against that lawsuit.”

It’s important to understand that even if you don’t have a good defense, it’s still important to file a timely answer. Refusing to answer will typically lead to a default judgment in favor of the creditor, at which point they may be able to garnish your wages, place a lien on your property or freeze your bank account in order to collect on the debt.

“The bottom line is that you can’t hide from the problem,” said Boltz. “The best thing to do is address it.”

There is a trial or the case is dropped

Once you file an answer, there’s a chance that the creditor may simply drop the lawsuit.

“It’s possible that the creditor will dismiss the lawsuit and decide not to proceed,” said Boltz. “They may do the cost-benefit analysis and decide that it’s not worth moving forward.”

Of course, they might not drop the lawsuit, and the case will go to trial. Boltz explained that most suits are handled in small claims court and follow a relatively standard procedure:

  1. The plaintiff (i.e. the creditor) presents their evidence.
  2. You are allowed to cross examine any witnesses they call.
  3. You present your evidence to either show that the debt is not yours, the amount is not correct, the statute of limitations has passed or any other defense.
  4. The plaintiff is allowed to cross examine your witnesses.
  5. Each side presents its closing argument.

A judgement is made

Once each side has made their closing argument, the judge — or, in rare cases, the jury — makes a decision and hands down a judgment.

If you win the judgment, by law you are no longer responsible for that debt. Unfortunately, that doesn’t mean that you’re 100% in the clear in terms of dealing with collection activities.

“The problem with debt collection is that often that debt will be sold to another debt collector who may or may not know that you’ve won that lawsuit,” said Boltz. “They may try to collect on it again, but at that point they’ve clearly violated the law, and you may be able to countersue and get some damages from them.”

If you lose the judgment, the creditor will have the right to begin collection actions against you. Depending on the state in which you live, that could include garnishing your wages, placing a lien on your home or other real property and even garnishing funds or freezing your bank account.

According to Boltz, judgments are good for 10 years and can be extended for another 10 years, and any unpaid amounts will sit there and accrue interest. So even if your home doesn’t currently have enough equity to cover your debt, the creditor can place a lien on your home, wait it out, and eventually either force you to sell once you do have enough equity, or demand repayment when you decide to sell it yourself or refinance your mortgage.

5 steps to take when you’re sued for debt

With that much on the line, what can you do to give yourself the best chance to win the lawsuit and avoid those collection actions?

Here are five steps you should take if you’re sued for debt.

1. Read the summons and complaint

First things first: Accept delivery of the summons and complaint and read them both thoroughly. Ignoring them will only lead to a default judgment against you, while reading and understanding them will help you meet deadlines and mount a convincing defense.

“When you get those papers, make sure you read them,” said Boltz. “Hiding from them doesn’t do you any good and is only likely to make you owe more money later on.”

Here are some important questions to ask as you read them over:

  • Who is suing you?
  • What is the debt they are suing you for?
  • How much are they claiming you owe?
  • Where has the suit been filed?
  • What is your deadline for filing an answer?
  • Where does that answer need to be filed?

2. Review your documentation

Once you know what your creditor’s suing you for, you can review your own documentation about that debt.

You may find that it’s not actually your debt, in which case you have a strong defense. And even if it is your debt, any information you have about when you took it out, payments you made and balances you owed will be helpful.

3. Consult an attorney

According to Boltz, hiring an attorney will give you the best chance to successfully challenge the lawsuit by making sure that you explore all possible angles.

“There are all kinds of valid defenses, from something as basic as ‘This isn’t my debt’ to something more complicated, like an application of the statute of limitations,” said Boltz. “A lawyer may also be able to find out that some of the ways in which the debt collection and the lawsuit were done were wrong, and you may have counterclaims against them.”

The Consumer Financial Protection Bureau suggests trying to find legal aid in your area, so be sure to look into opportunities to obtain free legal advice.

4. File an answer

No matter what, you want to file an answer by the deadline indicated on your summons. This allows you to avoid default judgment and gives you the chance to challenge the lawsuit in front of a judge.

5. Show up to court

Finally, if the lawsuit is brought to court, you need to show up and present your defense, no matter what. Again, showing up is the only chance you have to defend against the lawsuit and avoid a default judgment — so it’s an important step, even if you think your odds are low.

What to do if you’re held responsible for the debt

“If you get a judgment against you, you need to figure out how you’re going to pay it,” said Boltz. “Whether that’s by repaying it, negotiating a settlement, refinancing your home or filing bankruptcy.”

If you find yourself in this situation, check out some of MagnifyMoney’s free resources to help you evaluate your repayment options, including a guide to debt repayment, an overview of debt consolidation options and tips on how to negotiate a settlement on credit card debt.

In some cases, bankruptcy may even be the right move.

“If this is one part of a larger financial problem, bankruptcy may be the better financial option because it wipes the slate clean,” said Boltz.

And just as with the initial lawsuit, it’s important not to ignore the debt or simply refuse to repay it.

“If you don’t pay it, it will sit on your credit report for 10 years, and if they renew it, it counts as another lawsuit for another 10 years,” said Boltz. “You’re taking a beating on your credit report that in many ways is worse than a bankruptcy, because it shows that you have a judgment and you’re not dealing with it.”

Timely action is the key

Getting sued for debt can be nerve-rattling, but the good news is that you can often mount a valid defense as long as you understand the process and know how to respond.

Simply by filing timely and accurate responses, you greatly increase your chances of winning your case and avoiding repayment altogether.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here

TAGS: , , ,

Get A Pre-Approved Personal Loan


Won’t impact your credit score

Advertiser Disclosure

Pay Down My Debt

How to Pay a Debt in Collections Without Getting Ripped Off

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

paying off debt

Updated – Nov 5, 2018

If you’ve received a call or letter from a collections agency and you have reached an agreement with a debt collection agency,  you’re are now ready to make a payment but you’re wondering what to do next, this guide is for you.

Before you give them your account number or write a check, make sure you protect yourself. Once a debt collection agency has your account number, they can (and sometimes do) use that information to take more money from your account. But with the right precautions, you can protect yourself.

You may be asking yourself: is this legal? Can a collection agency really just take money from your account, even if you don’t give them permission? Unfortunately, the debt collection industry is a dark and murky place. Agencies regularly try to blur the lines of legality, and their sole objective is to get as much of your money as possible. Although there are a few exceptions, most collection agencies are incredibly small and scrappy.

If you’re starting to panic, know that you’re not alone. According to a recent study by the Urban Institute, 71 million Americans are estimated to have debt in collections. Fortunately, there are laws that protect you from getting hounded by collectors and steps you can take to resolve the matter.

In this post, we’ll explain how you should handle debt collectors, as well as the steps to take before, during and after repayment to avoid being ripped off. We’ll cover:

6 steps to take before you make a payment

1. Commit to action

According to Rachel Kampersal, marketing communications and programs associate at American Consumer Credit Counseling, as soon as a debt collector contacts you, take action.

“Whether it is to confirm the debt, to negotiate the payment or settle it, [taking] action will help get the problem solved much faster than avoidance,” Kampersal said.

2. Know your rights

Your rights are protected under the Fair Debt Collection Practices Act (FDCPA). You need to know what collection agencies can and can’t do when trying to get money from you. “Harassment and false statements are prohibited under the act,” Kampersal said.

Debt collectors can only call you during certain times and are required to give you a written notice of the debt. You have the right to challenge your debt, and you can even ask in writing for a debt collector to stop contacting you. The letter you send doesn’t mean you no longer owe the debt, Kampersal said. But it can put a stop to unwanted calls.

Here’s a list of a few of your rights from the FDCPA:

  • Debt collectors can only call you between 8 a.m. and 9 p.m. unless you consent to another time.
  • Debt collectors shouldn’t be contacting you directly if they are aware you have an attorney representing you on the matter.
  • They can’t contact you at work if they know your employer prohibits it.
  • The debt collector can’t communicate with anyone other than you, your attorney or a consumer reporting agency about your debt without consent.
  • If you notify a debt collector in writing that you refuse to pay a debt or that you no longer want to receive communication, the debt collector can’t contact you unless they’re acknowledging your request or informing you of a remedy to the situation.
  • Collectors can’t abuse or harass you. They can’t make threats, use obscene language or call you incessantly.
  • They can’t lie about the debt you owe.

– Click here to view how to handle debt collection calls

If you believe a debt collector is violating your rights, report them to the Federal Trade Commission or the attorney general’s office. You can learn more about your rights under the FDCPA here.

3. Confirm your debts

Don’t start making payments until you confirm the debts. “If you believe the debt in your name was an error or fraud, the first thing to do is see if you’re truly responsible for repaying the debt,” Kampersal said.

According to Kampersal, even one payment on a debt can mean you assume responsibility. You can double-check that the debt is yours by looking at your credit report or contacting the original lender. If you don’t agree with the amount that’s being collected, you have the right to dispute it under the FDCPA. Filing a dispute starts an investigation to determine if the debt is yours.

Another thing to double-check is that the collections agency isn’t collecting on debt that should have been cleared. “There is a bad practice among debt collectors of selling debt that’s discharged in a bankruptcy or [debt where] the statute of limitations has expired,” said Elizabeth Hubbard, executive director of 1 $ Wiser Consumer Education based in Krum, Texas. “Legally, they’re not supposed to be collecting on this debt.”

Sometimes, creditors will also sell an unpaid balance even if you made a settlement agreement. For example, say you pay $3,000 to settle a $5,000 balance and you have the agreement in writing to prove it. The creditor could sell the remaining $2,000 to a collections agency despite making an agreement with you. In this case, instead of making a payment, you need to pull out your records and dispute the balance.

4. Look at how old the debt is

It’s not uncommon for debt collectors to seek payment on old debt where the statute of limitations has expired. The statute of limitations is the number of years someone can sue you for a debt. Debt, where the statute of limitations has expired, is called time-barred debt. The collector has less power to make you repay this debt because they can’t take you to court over it. You can review the statute of limitations on debt for each state here.

Here’s the important thing to remember: Agencies are allowed to contact you about time-barred debt. It’s generally advised that you do not make any payments on it. Making even a partial payment could restart the statute of limitations timer.

Not sure how old your debt is? Ask for a debt verification to include the date of the last payment. The date of the last payment is typically the start of the timer for the statute of limitations.

Pay attention to dates and stand your ground. You may still receive regular communication from an agency trying to collect time-barred debt. Don’t give in to pressure tactics. Seek counsel from an attorney or credit counselor if you’re unsure whether you need to pay. If collectors continue calling you about an old debt, send a written letter asking them to stop contacting you.

5. Check your budget

You’ve done your research and confirmed the debt is one you need to pay. The next step is taking a look at your budget and savings accounts to see what you can afford to pay per month toward the debt. Think twice before wiping out all your savings to repay it. If an emergency happens, you could end up relying on debt again, which can get you into more trouble.

6. Set up a payment plan or negotiate a settlement

You have a few options once you have an idea of how much you can afford to pay. You may be able to work out a payment plan. A payment plan is when you agree on an amount that you’ll pay incrementally toward the debt until it’s paid off.

Another option is negotiating a settlement. A settlement is when you pay a lump sum that’s less than your balance to settle the debt. As part of the settlement agreement, you may be able to have the collector delete the account from your credit report, according to Kampersal. This is called a pay-for-delete agreement.

One thing to note with a settlement is that you may owe taxes on the debt amount that’s forgiven. Kampersal suggested speaking with a tax professional before settling in case it’ll have an impact on your tax filing.

Be wary of debt settlement programs that negotiate on your behalf. You may be charged a fee for the service, and there’s no guarantee that you’ll get a settlement. Settlements with collections agencies can be worked out on your own.

If you run into trouble, you can seek guidance from credit counseling organizations. Don’t go with any credit counseling service either. Interview counselors and check their credentials. The Department of Justice keeps a list of counselors that are approved for pre-bankruptcy courses. Bankruptcy may not be on your horizon, but these counselors may also offer basic credit counseling services. You can check out the list of counselors here.

Ultimately, the payment strategy you decide on will depend on your finances. If you go with the installment plan, Kampersal recommended avoiding an extended repayment schedule because it can increase the amount of time a negative remark stays on your credit report. All agreements made should be received by you in writing before you pay.

3 Rules for making payments to collections

1. Do not give access to your bank accounts

A collections agency may ask to make automatic withdrawals from your bank account. Do not allow this to happen. According to Hubbard, when they have access to your bank account, they could potentially take more money than authorized. We will mention this more in a section below!

You should be controlling your payments at all times and not allowing someone else to make withdrawals.

2. Pay with certified funds

There are a few reasons why it’s better to pay with certified funds than other methods.

The first is that certified funds are like cash. There can be no dispute about declined payments or bounced checks because they’re guaranteed funds. The second benefit is that both the bank and you have a record of the certified check. If the payment is ever called into question, there’s more proof to show you made the payment.

3. Keep record of your payments and communication

Lastly, your job throughout the process of paying a debt in collections is keeping highly detailed records of each payment and communication. If you have phone conversations where changes to the agreement are made, request a written copy of the details.

How to avoid being ripped off

Here are the ways you should never make a payment:

  1. Do not sign up for an electronic payment, which requires you to disclose your routing number and account number. By doing that, you give the agency access to your checking account. If they take more money than you agreed to, it will become your word versus their word. And, if you owe the debt and have the money, it could be difficult to defend yourself.
  2. Do not write a personal check. Your routing number and account number are written at the bottom of your checks, and a devious collector could use that information to extract funds from your account.
  3. Do not pay with your debit card. Again, this makes it easy for the agency to process payments electronically.

3 steps to take after your last payment

1. Get a letter of completion

Ask for a letter of completion from the collections agency stating you have paid in full. Hubbard told MagnifyMoney that consumers shouldn’t ask for a confirmation letter from anyone who answers the phone at the collections agency office. The letter should come from an authorized signatory. If you make a settlement agreement with your agency, you get it in writing. The last thing you want is for them to come back and ask for more money.

2. Check your credit reports

When you pay off a debt, your credit reports should be updated to reflect it’s paid off. But this may not happen right away. According to Hubbard, the collections agency has 30 days to report to the credit bureaus. If the account isn’t updated within that time frame, you can contact the credit bureau and send a notice to the collections agency. Again, any contact you have with the credit bureau or collections agency should be in writing.

Typically, collections accounts impact your credit for seven years. But the length of impact may be shortened in some cases. Learn why debt in collections doesn’t always hurt your credit for the entire seven years.

3. Put your records in a safe place

Even after repaying your debt, you need to hold on to your paperwork.

“Keep your records forever and ever and ever because debt gets sold so many times,” Hubbard said. You could get a call five, 10 or 15 years from now about a debt you paid off or settled. Debt can be sold in batches, which means collectors may not go in and check every individual account for accuracy before purchasing.

The collections process can be somewhat of a free-for-all in this regard, and the onus is on you to know what you owe. It will ultimately become your word against the collection agency, and the only proof is paperwork. So, make sure you have a file and store all of your history in it.

Facing your debt

Getting a call or letter from a collections agency can be unpleasant and even embarrassing. Don’t ignore the situation and let the debt pile up. Avoidance can cause bigger problems. Instead, come up with an action plan using the steps above.

Now, we are not saying that all collection agencies are evil or have the intent to break the law. We are just saying that there is an elevated risk, and you can easily defend yourself. If something bad happens, it can be very painful. At worst, a dubious collection agency cleans out your checking account.

You may win the money back in the end, but being without cash can be very difficult. Avoid the risks by planning ahead when you make a payment to a collection agency. And if you need help, find a credit counselor or attorney who can provide guidance.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor here


Get A Pre-Approved Personal Loan


Won’t impact your credit score