How to Improve Debt-to-Income Ratio

If you’ve recently been in the market for a mortgage loan, you may have come across the term “debt-to-income ratio.” This ratio is one of the many factors lenders use when considering you for a loan.

But what is a debt-to-income ratio?

A debt-to-income-ratio (DTI) is the percentage of your gross monthly income that goes to debt payments. Debt payments can include credit card debt, auto loans, and insurance premiums.

How to Calculate DTI

In order to calculate your debt-to-income ratio, you need to determine your monthly gross income before taxes. This must include all sources of income you may have.

Next, determine what your monthly debt payments are. If you’ve already created a budget, this should be easy. Be sure to include credit cards, auto loan, mortgage, and so on.

The final step in calculating your debt-to-income ratio is to divide your total monthly debt payments by your gross monthly income. To get a percentage, move the decimal point over to the right two times.

Here’s an example of a debt to income ratio formula calculation:


Mortgage: + $1100

Auto loan: + $300

Credit card payments: + $200

Monthly debt total = $1600

Monthly income gross / $4200

1600 / 4200 = .3809

0.3809(100) = 38.09

Debt ratio = 38%

What is a Good Debt-to-Income Ratio?

Generally, an acceptable debt-to-income ratio should sit at 36% or below. Some lenders, like mortgage lenders, generally require a debt ratio of 36% or less. In the example above, the debt ratio of 38% is a bit too high.

However, some government loans allow for higher DTIs, often in the 41-43% range.

Why is Your Debt-to-Income Ratio Important?

A DTI is often used when you apply for a home loan. Even if you’re not currently looking to buy a house, knowing your DTI is still important.

First, your DTI is a reflection of your financial health. This percentage can give you an idea of where you are financially, and where you would like to go. It is a valuable tool for calculating your most comfortable debt levels and whether or not you should apply for more credit.

Mortgage lenders are not the only lending companies to use this metric. If you’re interested in applying for a credit card or an auto loan, lenders may use your DTI to determine if lending you money is worth the risk. If you have too much debt, you might not be approved. 

How Much Does Debt-to-Income Ratio Affect a Credit Score?

Your income does not have an impact on your credit score. Therefore, your DTI does not affect your credit score.

However, 30% of your credit score is based on your credit utilization rate or the amount available on your current line of credit. Generally, your utilization rate should be 30% or lower to avoid having a negative effect on your credit score. That means that in order to have a good credit score, you must have a small amount of debt and actively pay it off. 

What is the Best Debt-to-Income ratio?

Long term, the answer is “as low as you can get it.”

However, hard numbers are better tools for comparison. Take a look at the following DTI ranges:

  •       35% or less = Good
  •       36-43% = Acceptable but Needs Work
  •       44% and up = Bad

If you’re trying to get a home loan, 36% is the most recommended debt-to-income ratio. If you don’t have a significant down payment saved up, 31% is a better target.

So how do you improve your Debt-to-Income Ratio?

Since the only factors determining your DIT is income and debt, this means that the only way to lower your debt-to-income-ratio is to pay down your debts or increase your income. Having an accurately calculated ratio will help you monitor your debts and give you a better understanding of how much debt you can afford to have. This is all easier said than done, though. Below are some creative strategies you can use to help improve your debt-to-income-ratio.

  1. Pay off your loans ahead of schedule

While loans typically have a repayment plan, you do not have to stick to this. If your budget has room for extra payments, you could pay off your debt ahead of schedule. One way to tackle this would be to adopt the snowball method, which involves paying your smallest debt first and then working your way up to the biggest. Conversely, you could use the avalanche method which involves paying off the debt with the highest interest rate first while making minimum payments towards your other debts. 

  1.  Refinance your debt with a new lender

If you are unable to pay off your loans or debt ahead of schedule, restructuring your debt may work for you. One option is to refinance if you qualify for a lower interest rate or can change your repayment terms. Pursuing refinancing may also allow you to lower your monthly payments which will also have a positive impact on your debt-to-income-ratio.

  1. Use a balance transfer to lower interest rates

Shop around for zero interest credit cards that offer 0% APR for a promotional period. Transferring your debt to a credit card like this can help you tackle your debt quicker while you don’t have to worry about interest fees during the promotional period. Be careful with this method, though. If you don’t pay off your debt before the promotional period is up, your interest rate could skyrocket and you may be left paying more than you were before. This could have an adverse affect on your DTI.

  1. Target debt with the highest bill-to-balance ratio

This strategy revolves around targeting the debt that will reduce your debt-to-income ratio the most using the least amount of cash. If you owe $200 on Card A that has a monthly payment of $40, and you owe $100 on Card B that has a monthly payment of $50, you would want to start by paying Card B because the monthly payment is 50% of your balance whereas Card A’s payment represents 20%. Using this method will have a higher impact on your DTI.

  1. Negotiate a higher salary/find a side gig

As stated before, increasing income is one of the two ways to improve your DTI. If you are unable to do any of the above–or even if you are– increasing the amount of money you bring in will lower your debt-to-income ratio. Asking your employer for a raise can be a great turn of events you might not have expected positive results from. Finding a side gig can allow you to allocate all extra earnings to debt and help get it paid quicker. 

Avoid employing short-term tricks to lower your ratio, such as getting a forbearance on your student loans or applying for too many store credit cards. These solutions are temporary and only delay repaying your current debts.

Need Help to Lower Your Debt-to-Income Ratio?

Your DTI is an important tool in determining your financial standing. If you’re struggling to come up with ways to lower your ratio or are looking for financial guidance, our expert coaches can help you. Contact us today to learn more about how’s Debt Management Plans can help you take control of your debt payments.



10 Warning Signs You Have Debt Problems

Many people know when they’re struggling financially. Intuitively, we feel the pressure of not having enough cash to meet all of our obligations. If you live on a cash basis, you will find yourself with no choice but to stop spending when the money runs out.

Credit and debt distort our intuitions. When you charge a credit card instead of paying outright, you don’t feel the same sense of pressure. Because they are designed for ease of use, it can be just as easy to lose track of your credit card spending. 

Although money problems can feel obvious, debt problems might be harder to identify. Here are some warning signs that indicate your debt might be building to a crisis – plus, insights on how to fix your debt problems in its tracks.

1. You make minimum payments.

Lower payments are great for consumers because they are flexible. However, minimum payments are designed to keep people in debt longer. By only chipping away at the debt, you’re stuck revolving your debt month-to-month while interest racks up. 

Learn more: What are Interest Rates & How Does it Work?

No matter your debt levels, making minimum payments is a problem. Even if your debt is relatively small, you could spend decades paying it off if you only pay the minimum required monthly payment. For larger debts, it’s even more important to pay as much as you can over the minimum every month.

  • How to solve it: Start by setting up automatic payments to avoid missing any due dates. Try setting aside more money every month to help take that debt down faster. If minimum payments are all you can do for now, try looking for a side job to earn some extra income. 

2. Your minimum monthly payments are large.

When debts are scattered, it’s important to add up the monthly payments to see how much you’re dedicated to this type of bill on a regular basis. Below are some steps to check if your monthly payments are too large:

  1. Start with a blank sheet of paper. Write down your take-home income for the month. 
  2. Calculate the value of 20% of your income. This can be done by multiplying your take-home income by 0.2.
  3. Then, look at your bank account and/or credit card statements. 
  4. After documents are open, make a note of all of your minimum payments.
  5. Add each of the minimum payments together.
  6. Compare that value to the number calculated in step 2, the 20% of your income.
  7. Make a decision based on the figure: If the total value of minimum payments is the same or higher than 20% of your income, your monthly payments are too large. If they’re less than that, start allocating more than your minimum payments toward your debts.

Ideally, the amount of money you’re paying towards your credit card debt should not exceed 15-20% of your income. Paying over this threshold puts you at risk of not having enough income to cover your housing, food, transportation, and other necessities.

More resources: Credit Card Payment Calculator

It’s critical that you pay down your balances so the minimum required is a smaller part of your income. Keep paying 20% until everything is paid off, of course, but if you’re paying 20% of your income and barely paying the minimum required, you have a debt problem. 

  • How to solve it: It’s critical that you pay down your balances so the minimum required is a smaller part of your income. Keep paying 20% until everything is paid off. If you’re paying 20% of your income and barely paying the minimum required, you have a debt problem. Creating a budget and sticking to it can help you stay on track and out of debt. 

3. You’re struggling with debt collectors.

In 2016, debt collection was the largest source of complaints in the Federal Trade Commission’s (FTC) database of consumer complaints, generating more than 850,000 complaints. One of the more annoying warning signs, this debt problem can only really be solved by settling your outstanding debts.

Debt collectors calling or creditors threatening you with things like wage garnishment or repossession can be hard to manage. If you have the money to pay off your debts, you should begin to make payments every month. Making payments on time will not only lower your debts, it will stop collectors from making these threats. 

  • How to Solve it: Be careful about communicating with collectors, as you may obligate yourself to pay balances you don’t truly owe. Get professional help from a credit counselor to learn your options for debt repayment.

What to do If a Debt Collector Calls You

4. You’re using balance transfers and refinancing to stay afloat.

Balance transfers, or the act of transferring outstanding balances from one card to another, is a common transaction for those looking to lower their monthly interest rate payments. Similarly, many homeowners refinance their homes to pay down revolving debts. But if you’re considering one of these two options regularly, you have a debt problem. 

It might seem like a good idea to use a refinanced home equity loan with lower interest rates than credit cards to pay down credit card balances. However, using home equity or other methods to pay off credit cards has a high potential to end in disaster. 

  • How to Solve it: Before taking on new debt to pay off existing debt, you’ll need to address the root causes of your debts and change your behavior going forward. Ideally, you should focus on paying off debts that you have before taking out a new one. If balance transfers are unavoidable, try finding one with low or no balance transfer fees. 

5. You rely on cash advances.

The worst way to use a credit card is to get a cash advance. Not only is the money loaned to you at the worst possible terms, it often comes with high one-time charges as a flat rate or a percentage of the amount. A $1,000.00 cash advance could have a one-time fee of $50.00, plus interest for any unpaid balances. 

Plus, if you take a step back and think about what the money could be used for, it’s likely to fund an emergency or an unplanned bill. Saving for an emergency fund now will create a safety net to help offset the amount you still need for emergencies, or pay for it altogether. 

  • Never get a cash advance unless it’s a genuine emergency. Using cash advances for regular bills and expenses is a sign of a debt problem. If you’ve already taken out cash advances to pay down debt, make repaying this advance a top priority to avoid paying its drastically higher interest rate.

6. You’re being denied for loans or credit cards.

When it’s time to take out another loan, waiting for approval is nerve-racking. Once you’re turned down for a loan or credit card, or even if you can only get a loan under very poor terms, stop and examine your situation. If your excessive debt levels lead a lender to deny or extend further credit to you, you probably have a debt problem.

  • How to solve it: Review your credit reports and correct any incorrect or outdated information. Then work to pay down balances to improve your debt-to-income ratio and increase your creditworthiness.

7. You’re not building your savings.

Every month, you should be putting money into savings. This takes many forms: build an emergency fund, save for retirement, homeownership or even your kids’ college. If your budget does not include a savings plan, start right now. 

Learn More: How to Manage Your Savings Account

The point where you’re unable to save money is where you need to start examining where your finances stand. If you simply can’t save because there’s not enough money left over after paying your bills, you may have a debt problem. If your savings are decreasing instead of increasing or if you’re dipping into your retirement funds to stay afloat, you have a debt problem.

  • How to Solve it: Start saving 5% of your income for emergencies and savings goals. Budget aggressively to set aside extra money to reach this amount, and as you pay down outstanding debts, increase the amount you are putting into savings to 10% of your income.

8. You’re unaware of your debt problems or have a budget.

Ask yourself: Do you know exactly how much debt you have and what it will take to be completely debt free? If you have more than one credit card, do you know how much you owe toward each one and have a plan to pay off the entire balance? 

These questions should have simple answers – you should know the next steps in your plan to be free of debt. If you don’t have ready answers to these questions, you have a debt problem. 

Even if you have plenty of money available, you need to leverage it to become debt-free. And if you’re going out of your way to avoid opening your credit card bills or emails because you don’t want to see how bad things are, then you already know you have a debt problem, and it’s time to do something about it.

  • How to Solve it: Attend a free online budgeting webinar or take a free course, then create a budget right away. Budgeting starts with tracking your spending, which includes assessing your overall debt payment situation. Knowing where you stand is the first step toward getting on the right track.

9. You’re over-limit or getting declined at the point of sale.

Credit cards are useful for daily costs, especially when the balance is settled regularly. If you have a card that is maxed out or near its limit, you have a credit card debt problem. If you have to try more than one card at the register until one of them is accepted, it’s time to stop borrowing and take control of your situation. 

  • How to Solve it: It’s important to stop using credit cards for purchases until you’ve paid down your existing balance to manageable levels. Do what you can to get closer to handling that debt to have a good debt-to-income ratio

10. Your debts are affecting your personal relationships.

Do you actively keep your partner in the dark about the household debt situation? If so, you need to take a look at your finances and find a way to become proud of them. Whether that’s being honest with yourself about your position or starting to pay down debts until you are, you’ll need to find relief. Hiding financial information from your loved ones is a strong sign of a debt problem.

  • How to Solve it: If you haven’t created a household budget that includes the active participation of everyone in your family, you need to open up and get everyone on the same page. Check out our free “Couples & Money” and “Raising a Money-Smart Child” workbooks from’s downloads page.

How to Fix Your Debt Problems

There are plenty of other warning signs to look out for with regard to financial troubles; the ten listed here focus specifically on debt. If you are struggling with debt, or showing any of these warning signs, we can help. Our coaches can help you create a budget and come up with a workable plan to address your debt situation.



10 Ways to Get Out of Debt Fast

Creating your own get-out-of-debt plan truly is possible, and it may be easier than you think. With some fundamental changes to your lifestyle, you can get out of debt fast–even with a low income.

However, turning around your financial situation doesn’t happen without some work. It requires commitment, planning, and strong self-discipline. But luckily, it gets easier over time as you build better spending habits.

Don’t wait to take back control of your life. There are many ways to get out of debt fast.

Check out these tips for paying off debt:

1. Stop Borrowing Money

The first and most important step in getting out of debt is to stop borrowing money. No more swiping credit cards, no more loans, no more new debt.

Reshaping your attitude toward money and debt is the most fundamental change that has to happen. In order to avoid digging yourself into a bigger hole of debt, you have to understand the true cost of swiping a credit card and taking out new loans.
Resolve to live on a cash basis while you make your changes. Don’t worry about debt consolidation or balance transfers at this point – you’re still in the early stages. You don’t want to trade one kind of debt for another until you understand your situation and have a plan.

2. Track Your Spending

The next step in getting rid of debt quickly is to figure out where your money is going. It can be difficult deciding where to make budget cuts without having a full picture of what you pay for and how you spend.

It’s best to track all of your monthly bills for at least a month as well as daily spending. Don’t forget to include your debt payment obligations while tracking.

There are a number of ways to track your money. Some of the most common ways include:

  1. Use a budget worksheet
  2. Keep notes in a notebook
  3. Download a money app
  4. Use banking app trackers
  5. Keep receipts

Whatever method you choose, make sure it is one you will remember to use every day and will help you get a full picture of just how much money you spend.

3. Set up a Budget

Once you’ve tracked your spending, it’s time to create a budget. By using your regular spending as a guide, this budget should account for all of your needs.
The tracking will also show you places to cut spending. You’ll be able to see where you’re spending too much and where you can easily make cuts without deeply affecting your life. Of course, you may also find places that need changes that you may not want to make. It’s important to find a balance between livability and a strict budget to get out of debt. 

A vital part of the budgeting process is to put it in writing. It’s not enough to mentally plan how much you’re going to spend – it has to be recorded in concrete form.
It’s also important to include financial goals in your budget. Writing your goals down makes you 42% more likely to achieve them. For you, the goal to get out of debt fast is probably your #1 priority, but don’t forget building an emergency savings fund as well.
After your debts are paid off, you can come up with more goals to save. Just remember to add them to your budget in writing to hold yourself accountable.

4. Create a Plan to Pay Off Debt: Try a Debt Snowball Method

Now that your spending has been tracked and your budget is created, it’s time to implement a payoff strategy. If you need to clear debt fast, you’ll need to know exactly how to pay off debt with a plan that maximizes your payoff schedule.

One of the quickest ways to get rid of debt fast is by using the “debt snowball” approach. What is the debt snowball method? This strategy calls for you to make minimum payments from your monthly debt payment fund to all but one of your debts. This specific debt will get more than the monthly required amount and will be paid off quicker as a result.
When that debt is paid off, you choose another debt and reallocate all of the extra funds toward it. Keep repeating this process until all debts are repaid in full. Over time, the extra funds snowball, while the amount of money you dedicate to debt repayment stays the same.

For example, imagine that you are dedicating 20% of your monthly income to your debts, which comes out to approximately $300. If you have 3 debts, you would pay $50 to one, $50 to another, and $200 to the 3rd. Once the third is paid off, you’ll pay $50 to one and $250 to the other.

Remember to keep the total amount you put toward debts consistent. If you are putting $300 toward debts each month, and you pay off one of the debts, you’ll still be paying the full $300 toward debt the next month.

This method accelerates your repayment faster as debts get paid off. When trying to decide which debts to pay off first, you can sometimes focus on paying the debt with the highest interest rate first. However, which debt you choose to focus on might depend on your situation.

5. Pay More Than the Minimum Payment

If you’re trying to figure out how to get out of debt fast, you should try to put as much as you can toward debts every month. Remember the debt snowball method – every chance you have to make higher payments will bring you closer to being debt-free.
When you create your initial budget, set a minimum amount that you are putting toward debts each month. This should be around 20% of your total income. Of course, any opportunity to add more will help get you to your goals faster.

No matter what your situation, it’s important to pay more than the minimum required. Make this an ironclad habit. Even if you have a terrible month with unexpected emergency expenses, pay more than the minimum payment, if possible.

6. Consider Balance Transfers & Debt Consolidation

You may be one of the many consumers struggling to make ends meet with little to no income. If this is the case for you, how can you get out of debt fast with no money?
If you’re overwhelmed with too many payments and not enough income, you might be considering a balance transfer or consolidating debt to get rid of your extra payments quickly. However, you have to be careful about such strategies.
Transferring your credit card balance may give you a 0% introductory rate for a while, but transfers often come with an up-front fee. If the introductory rate only lasts for 12 months, you would have to pay the debt off in full before the year is up.

Debt consolidation loans might sound like an even better idea, but consolidating can leave you worse off than you started. Lumping the balances of five maxed out credit cards and seeing accounts with zero balances can be tempting. Without the strict combination of budgeting, lifestyle changes and making payments, you may find yourself with even more debt than you had before.

There are other ways to transfer debt that seem attractive but should be avoided. Specifically, using home equity loans to pay off revolving debt or dipping into your retirement savings. Why? It’s vital that you avoid trading good debt for bad.
But what is “good” and “bad” debt? Mortgage loans are good debt – they keep a roof over your head and help you build wealth steadily over time. Credit cards are bad debt – they typically have high interest rates and can easily ruin your spending habits.
Using home equity to pay off revolving debt is a short-term solution that may leave you worse off than when you started. Not only will you have put your home at risk to temporarily get your head above water, but you might also be back in debt with no equity to draw upon.

It is a better option to consolidate debt payments rather than consolidating debts. Instead of getting a new loan, use a Debt Management Plan and make one payment every month. This will keep you from incurring new debt and provide you with expert advice when you need it.

7. Renegotiate Credit Card Debt

Like many other consumers, you may be unaware that you can renegotiate your credit card contracts to pay a lump sum amount instead of costly monthly payments. This is known as debt settlement. But how do you negotiate a debt settlement?
All you have to do is ask. Give your creditors or lenders a call and request a lower interest rate on your credit cards. As long as your payment history is good, you have a chance of getting some relief.

You can also negotiate credit card fees. If your creditor is unwilling to work with you on a new interest rate, you may ask if they would be open to waiving some of the fees and recurring charges you face.

Credit cards are the only bills that can be lowered with a phone call. You would be surprised at how far a call can take you. Most companies will want to keep your business and will offer some other options to get a lower monthly payment.
Some bills that you could consider lowering include:

  1. Cable bills
  2. Phone bills
  3. Insurance
  4. Electricity

Don’t be afraid to shop around to find lower rates from competitors. Also, don’t be upset if a company tells you “no.” As long as you’re continuously making payments to all of your debts, you will see an improvement in your situation.

8. Create a Family Budget

It’s common to see one member of the family be responsible for all of the household’s finances. This often means that no one else in the household knows what’s really going on. If you’re going to be successful, it’s important to have a strict budget to pay off debt that the whole family knows about.

Come clean with your partner and family members. If they don’t know your full debt situation, then you’re going it alone. Tell them about the debts, your plan to pay them off fast and get them on board with your repayment strategy.

You need everyone in the house to participate in the tracking and budgeting steps. All the saving in the world does you no good if you live with someone who is spending without regard to the household budget. You have to involve them in this process and get them on the same page.

This might include some hard conversations. Your kids might have to accept a less-than-stellar Christmas or you may have to put off that big purchase they were hoping for.

If handled correctly, these types of conversations can be beneficial for kids. Budgeting and savings are excellent personal finance skills that may not be learned elsewhere. Keep them involved in the budgeting process and let them pick out specific goals to aim for. Focusing on this goal may make them less likely to splurge elsewhere and more helpful to you when it comes to keeping the family on a budget.

9. Create the Best Budget to Pay Off and Stay Out of Debt

Life happens in an instant, and you may not have the income bandwidth to survive an emergency, sudden change or any other altering scenarios. That is why it’s important to have a budget that is flexible and crafted specifically for you to support you in any situation.
Flexibility is vital to success and will keep you on track if things go south. If you’ve done all of the prep work and put your budget in writing, it will be easier to make the necessary adjustments.

Don’t be afraid to start completely from scratch and create a whole new written budget. If your life changes, change your plans along with it. Use what you’ve learned so far to create an even better budget than before.

There may also be times that you must adjust to a temporary budget. Sudden events that take a sizable chunk of your income may require you to have a particularly strict budget one month. Even one month of living really lean can help you catch up financially.

Don’t be too flexible, though. Any wiggle room in your budget shouldn’t allow big, unplanned purchases. The process of getting out of debt fast means making sacrifices. If you’re not committed to going without things you want, you’ll never succeed in getting rid of your debt.

10. Don’t Give Up: Get Professional Debt Help

At, we’ve provided professional debt help for consumers to become more financially literate and reduce their debt over the past 40-plus years. We know it’s possible to get out of debt no matter how tough it might look.

It’s important to remember that it’s not about how much money you make. High-income people can stay mired in debt their whole lives, and people with low incomes can live debt-free. Your spending habits can be adjusted to match your lifestyle. The sooner you develop those good spending habits, the better.

Remember, you don’t have to go it alone. There are qualified financial coaches ready to help you set up a debt repayment plan and get out of debt today.



What to do If a Debt Collector Calls You

Debt Collectors Keep Calling Me!

No one likes getting calls from debt collectors. Owing money to a group of strangers who have all of your personal information can be frightening and stressful. But why do debt collectors call?

You typically only receive collection calls when you owe a debt. Collection agencies buy past-due debts from creditors or other businesses and attempt to get you to repay them.

When debt collectors call you, it’s important to respond in ways that will protect your legal rights. Be sure to remember the following information the next time a bill collector reaches out to you.

Understand Collection Call Laws

The debt collection industry has been plagued by bad behavior from collectors for years. In order to curb this behavior, the Fair Debt Collection Practices Act (FDCPA) was passed in 1978.

This act presents a number of rules and restrictions that debt collection agencies must follow. Here is what debt collector can not do: 

  • Call you outside of the hours of 8 a.m. – 9 p.m., Monday-Saturday (not on Sunday)
  • Call you repeatedly within a short period of time
  • Threaten you with violence
  • Discuss your personal information or debts with other people
  • Claim false debts or false information on your reports
  • Cannot lie about their identity
  • Keep calling if you request them to stop in writing

Despite the legal strides to protect consumers, it’s common for some debt collectors to violate collection call laws. That’s why it’s important to proceed carefully whenever you are contacted by a debt collector.

Your response to a debt collector should be different based on who is calling.

If you are contacted by the original creditor or business that you owe money to, they are not bound by FDCPA laws. However, they may be bound by local and state laws that are similar to the federal Fair Debt Collection Practices Act.

Third-party debt collectors are also known for charging consumers with “zombie debt,” or debt that is old, past the statute of limitations or has already been paid off. These parties resurrect these old debts in an attempt to scam consumers. To avoid falling victim to these claims, there are a number of steps you can take to prepare yourself. The following are some tips you can learn to protect yourself in these situations.

Here’s what to do if a debt collector calls you:

Take Notes

When a bill collector contacts you, your first order of business is to take notes. Whether you prefer pen and paper, spreadsheets, or screenshots, having a paper trail and proof of their communication is one of the most valuable tools you can have when disputing charges.

Some questions and notes to consider keeping track of include:

  • The name of a person who called you
  • What company they represent
  • When they called
  • A mailing address to send written correspondence to
  • What you discussed
  • Any requests made

Do not overlook this step! It’s important that you document every contact you have with a collector in the event you need to protect your legal rights.

Don’t Admit You Owe the Debt

The most important tip to remember when responding to a debt collector is to avoid admitting or confirming any information without first having debt validation. Before you do anything else, start by writing a debt validation letter. If you say or do anything that confirms that the debt is yours, you may be giving up some of your legal rights.

Collection agencies often make mistakes, so it is important to confirm that the debt is the correct amount, that it truly belongs to you or it is not expired past the legal amount of time it can be held against you. The only way to confirm this is through writing.

Most delinquent debts expire and must be legally removed from your credit report after 7 years. A collector can still try to get you to repay debts older than this, but they can’t use negative credit reporting as a collection tactic.

Don’t Make Any Payments or Promises

Promising to make future payments or providing a collector with your financial information can have the same effect as admitting to owing debt. Any payment you send or offer to pay will “reaffirm” that you owe the debt and legally allow the collector to report the delinquent debt to your credit reports.

It is in your best interest to withhold any payment information until you’ve confirmed that the debt is real. Additionally, some debts asked for may be past the statute of limitations or legal time period that a business can request that the court compels you to pay your delinquent debt.

Even if you agree to pay off a debt, buy a cashier’s check. Never provide them with any documents that disclose your bank account number.

Request a Debt Validation Letter

A debt validation letter is the best way to find out what debt collectors you owe and how much you need to pay. This can include both the original debt amount and any extra fees the collection agency is adding.

When a collector first contacts you, they are required by law to follow up with a written letter about the debt they are collecting. This is known as a debt validation letter.

If the debt collectors do not respond with a written validation letter within 5 days of contacting you, you have up to 30 days to send a verification letter requesting a validation letter.

Validating a debt goes beyond the fact that you owe a debt, it also confirms the amount is correct, the age of the debt is correct and that the collector has the legal right to collect the debt. This letter is also an excellent source of information for you to use in your research on the collection company.

This validation will protect you from collectors illegally re-aging a debt to make it seem more current than it is, or changing the amount you owe by adding on extra fees. The collector must show:

  • Documentation proving that you agreed to the debt
  • A written agreement with your signature on it
  • Information from the original creditor with whom you made that agreement

If you’re unsure about whether to request debt validation, you can talk to a financial coach who will review the situation with you and answer any questions you have.

Even if you agree to pay off a debt, buy a cashier’s check—do not write a personal check to a collector. Never provide them with any documents that disclose your bank account numbers.

Keep it Professional

How you handle collection agency calls is just as important as confirming that you owe a debt. Like any other legal or financial proceedings, keeping conversations professional and impersonal will protect you both emotionally and legally.

Do not let the collector drive the conversation to an emotional place, if they start to threaten or accuse you, shut down the conversation. Tell them you know your rights under the FDCPA and you will not tolerate any abuse.

It is also important that in these situations, you are also keeping calm. If you get heated and use strong language, it will weaken your case in the event of an FDCPA claim.

Don’t Provide Any Personal or Financial Information

Collectors will want to find out as much as they can about your finances, but you should not disclose anything until you receive validation of your debt. This will protect you from assuming responsibility before discovering whether it is legally yours or not.

However, if you’ve received the validation letter and still don’t feel you owe the debt, speak up. Even if it is unintentional, collectors may make a number of mistakes before pursuing you for debt, such as:

  • Pursuing debts that have already been paid off
  • Pursuing accounts that were created with identity fraud
  • Charging the wrong amount

It may appear to the collector that you legitimately owe the debt, but you should stand firm if the debt was created illegitimately.

If the debt is fully valid but you don’t know how to deal with debt collectors when you can’t pay, talk with one of our trained coaches to decide which plan of action is best for you.

If the debt is fully valid but you can’t afford to repay it, you can talk about this with the collector, and try to offer some kind of settlement. Find out more about Debt Settlement.

Look Out for Debt Collector Scams

Some debt collection activity is fraudulent, and can only be spotted by following these steps. It’s important to take a hard look at every collection call you receive in order to avoid falling victim to a scam.

Scammers can be very sophisticated and may appear legitimate, even to the trained eye. Keep an eye out for any red flags, be careful what you disclose, follow up for all legal documentation and make sure that all of the information you are given is correct.

Here are signs that it could be a debt collection scam:

  • They violate the FDCPA. Visit the Federal Trade Commission’s site to look over the protections offered by the Fair Debt Collection Practices Act. Never agree to work with any collector who willfully violates any part of this law.
  • They demand payment on a very short timeline. If a collector demands payment by the end of the day, they’re likely to be a scammer. It’s reasonable for any collector to have a deadline for repayment, but if the timeline is very short, you should be suspicious.
  • They can’t give you details about the debt. If a collector truly owns the debt, or if they were assigned the debt by your creditor, they should be able to know where the debt originated, how much is owed and any other similar details. They should also be able to provide these details in writing.
  • They demand unusual payment methods. You should have multiple options for how you can repay a debt (and the only one you should use is a cashier’s check). If a collector wants you to send gift cards in the amount of the debt owed, you’re being scammed.

What to Do if a Debt Collector Sues You

What happens if you don’t pay debt collectors? It is likely that a collection agency may turn to the courts to legally compel you to pay or garnish your wages.

Here at, we do not offer legal advice. If a collector sues you for repayment of outstanding debt, get qualified legal advice from an attorney.