Are you aware that you still have debt that you owe to a creditor? Do you think you remember exactly, or at least close to the amount that you owe? You might want to take a minute to check out how much you really owe. While you might think that your debt amount stays the same once it is passed off to a debt collector, you could be wrong. And that wrong assumption could cost you hundreds or even thousands of dollars.
Unfortunately, debt collection agencies may charge interest on debt that they purchase in certain situation, but CFPB states that it is bound by the original agreements and state laws. This means your debt could grow larger and larger the longer you wait. Luckily, there are some boundaries put in place to stop unchecked fees and charges. We will cover all of this and more in the rest of this article.
As mentioned above, debt collection agencies can charge interest fees on debt that they have purchased. So if you owed $1,000 on your credit card and your account went delinquent, your credit card company may have elected to sell the debt to offset the loss. Once the debt collection agency owns the debt, they can add interest fees and late payments. However, they do have to abide by what was laid out in your original lending contract. This means if your credit card had an APR of 20%, they cannot exceed a charge of 20%. This keeps collection agency charges from skyrocketing and abusing the system.
Again, debt collections have to base their charges on what was laid out in your original contract. While this is supposed to protect the borrower from price gouging, there are often ways that debt collection agencies can maximize their profit. With things like credit cards, a set APR is not common. It is far more likely to have a range that the contract lays out. This range is typically large and the rate changes depending on a variety of things. If you are a great borrower that pays back their credit on time, the rate is typically lower. If the economy is strong, sometimes these rates can go higher. However, when a range is present in the contract, this allows for the debt collection agency to go as high as the high end of the range goes.
Debt collection agencies might also task on late fees, if the original contract allowed for them. Different from interest payments, late fees are also allowed by the FDCPA if they were outlined in your original contract. For instance, if your contract stated that a $5.00 fee would be added to your total amount for every 30 days you were behind on your payment, that would be allowable by the debt collection agency as well. We will also look at how we can get rid of late fees in the following segments. For now, lets look at how long a debt collection agency can add these fees onto your original debt.
Fortunately, these fees can not be added on indefinitely. In most circumstances, there is a statute of limitations that runs out after 10 years. This means that, after the 10 years have passed, no more interest can be added to the original debt. While this might sound nice, that is 120 months that the debt collection agency has to add interest payments and late fees to your account. This can easily take a $500 debt to be hundreds, if not thousands, of dollars larger than where it started. Luckily, there are still things you can do to prevent yourself from having to pay the interest payments that accumulated.
Don’t let the overwhelming amount of interest or late fees stop your from trying to get out of debt. If a debt collector has been adding interest payments and late fees to your debt, consider doing the following:
In theory, those interest payments and late fees do not accurately represent what you should owe the debt collection agency. They bought your debt at a drastically reduced cost from the original creditor and then began blowing it up as much as they could to try and make as much as they could. Instead of just paying the absurd charges that they added, consider trying to settle the debt.
Debt settlement is relatively straight forward. You offer the company what you can or are willing to pay, and if they accept, you send the payment and the account is closed. If you work with a debt settlement company, they will negotiate on your behalf in exchange for payment once the account is settled. If you do this, the debt collection agency might be motivated to reduce the amount they are willing to accept in order to make a profit.
This means they might consider removing some, if not all, of the late fees and interest payments they added onto your account. In the end, you could end up paying only a partial amount of the debt you started out with! This does have some pretty drastic impacts on your financial world, but it might be worth looking into if you are unable to fully pay back what you are being told you owe.
Do you think that the debt collection agency might be padding your debt amount unlawfully? Consider challenging the agency by requesting proof that the charges they are adding are guaranteed in your original contract. If they are not able to prove that they have been abiding by what is outlined in your contract, they may very likely drop the chargers that they added.
You could also involve the courts. If the debt collection agency is either not following the rates set by the contract, or adding on charges that weren’t even laid out in the original contract, then considered filing a lawsuit against the agency. At the very least, you should be able to have the extra charges dropped.
While you definitely need to be careful talking to a debt collector, you might be able to have the charges dismissed by simply calling the agency. Explain that you either believe the charges are wrong, or explain that you are attempting to pay, but cannot afford the extra fees. The agency might drop the fees with a simple call.
Keep an eye on the amount of debt you owe once it is sold to a collections agency. If it gets unreasonably large, or the amount jumps without notice, it may be something to look into. Ask for an itemized receipt of what debt you owe and what charges were added on. If something looks suspicious, talk with someone! And if you want more information on how you can get out of debt, get in touch with our team here at Ascend at 833-272-3631. You can also use our free Debt Relief Calculator to explore your options moving forward.
