Collections Agency and What Happens to Credit Card Debt?

Collections Agency Credit Debt – What Happens to Credit Card Debt?

For many people, credit card debt is easy to get into, but a harder burden to get out of. However, on the other hand, for credit card companies it is a sellable asset that they can offer at will. For example, Barclay sold nearly $1.6 billion of credit balances in 2017 to Credit Shop Inc.
However, these credit-buying transactions aren’t uncommon. Most of these even include accounts that are deemed too risky for the lender’s business. This way, a company can sell off their accounts for a percentage of what it’s owed. Check out our guide below for more information about credit debt that is sold to a collections agency.

When does a credit debt collections agency buy credit card debt?

Why Do Lenders Purchase or Sell Outstanding Credit Debt?

The majority of credit card debt is income for the lender that owns it. For example, just last year, American Express earned nearly $1.4 billion in interest from debt.

However, not all debts are the same. This is why most lenders offer different rates depending on your risk and amount of money you need.

Borrowers who have poor credit commonly pay much higher interest payments, which accumulate more income for the lender. However, once a borrower fails to pay off their debt, the bank can start taking a hit for it.

Naturally, not all lenders want to deal with the risk it poses, so they end up selling the account to the highest bidder.

However, that’s not saying that there isn’t opportunity with those with poor credit. In fact, most credit accounts are opened with people with fair to poor credit for cash back cards or accounts that offer rewards for using their issued card.

Don’t assume that banks are immediately going to sell your account if it goes under, as well. Most lenders try applying more credit card debt onto their customers who aren’t willing to pay. This may seem like a bad thing for the borrower, but in most cases, it is the push they need to start paying. However, just as they add debt onto accounts that are behind in payments, some lenders offer consolidation cards to their customers to help them lower their debt or become debt free.

How Do I Know if My Account was Sold to a Collections Agency?

The easiest way you can tell if your account or credit debt has been sold is if you get a call from a debt collection agency. This happens when your lender sells off your debt to a collections agency, who will try to collect the money from you.

What do I do If a Credit Card Debt Collector Contacts Me?

It’s no surprise if you get a call from a collections agency. This means your lender sold your account to another lender to try and collect payment from you. Luckily for you, the Fair Debt Collections Practices Act has laws intact to protect you and your finances from any debt collections agency. For example, debt collectors aren’t allowed to call you and make threats.
You are protected by this law to ask for physical proof of your credit debt and the amount you owe. These requests have to be made within 30 days from your first call from a debt collections agency.

However, during these 30 days, the collections agency is not allowed to contact you.

Those being contacted by a debt collector also have the right to be contacted in writing only. This can help prevent being harassed at work by debt collection agencies, and you can sue if the collector refuses your demand.

How To Prevent a Credit Card Debt From Going to a Collections Agency?

Having to deal with debt collections can be stressful. You can’t control what happens to your debts, and you can’t prevent them from being sold. However, you can avoid the situation altogether by trying to make your credit card payments on time and keeping your balances from getting too out of hand.

Thanks to the federal CARD Act, credit card companies must allow their customers to make a payment within 21 days from the mailing date of their statement. This law went into effect in 2010. Try to pay down your balances as much as you can during those 21 days.

Credit card companies must also give 45 days of notice before they raise your rates. If you are given one of these notices, determine if you will be able to pay off your balance. If you cannot, consider transferring your balance to a card with a lower rate. This will make it easier to pay back.

Paying Off a Credit Debt to a Collections Agency Might Now Be the Best Idea

For those with an old credit debt on their credit report, the best course of action might actually be inaction. This, however, is only the case if you have not been sued for this debt before. If you want to take care of your debt, do the right thing, or remove it from your credit report, you might be better off just ignoring it.

Negative marks on your credit report typically age off of your credit report after seven years. If you are not concerned with taking care of your debt because of credit reasons, you should still not repay your debt. This is true, too, if your credit debt is older than seven years.

Additionally, each state has its own statute of limitations for being sued for a credit debt. Check out the statute of limitations in your state before you make a plan for repayment. Frequently, it does not make sense to repay debts that are older than the statute of limitations. In fact, your credit card debt may have been sold and passed around so much. You might not even know who to pay the debt to anymore or how much you owe them. And unfortunately, making a payment can open the statute of limitations once again.

If you have a debt that is outside of the statute of limitations and you try to pay it off fully, you may be faced with all sorts of fees and interest that you did not even know about. Additionally, if you are unable to pay off the full amount of the debt, you are opening yourself up to a lawsuit again.

In some Many Cases Pay the Newer Credit Debt First

Paying off your credit debt later in its lifetime can be riskier than letting it fall away. Your best course of action may be to wait until the account ages off of your credit report doing anything. Then you can decide whether or not you still want to pay it back. When it comes to debts that are owned by debt collection agencies, you should pay off the newest debts first and then work your way to the older debts, if at all.

Monica Kowollik

Director at CreditFast.com
Monica has covered credit card and personal finance news for over 15 years. From an early age, she developed an interest in financial literacy and saving money. Monica hopes to help others to improve their personal finances one article at a time.

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