Has your debt been passed to a collection agency, and now they are hitting you with high-interest rates? Or has your debt been passed along, and now you find yourself worrying about interest charges and paying the debt off?
Perhaps you’ve been completely blindsided by a letter in the mail instructing you that you owe money to a collection agency (with interest)?
Well, you aren’t alone! Many people across the country find themselves in this situation every year, and it isn’t a pleasant one. Debt from unpaid fines, credit cards, or bills can be passed along to a collection agency that is employed to get the money you owe.
It can be a stressful and scary time, and the last thing you want is to be stressing about interest charges. And no matter how hard you try, you can’t stop worrying or wondering, and finding the answers is like Kim K trying to find her earring in the ocean.
Well, no more! We are here to help you understand the interest rates collection agencies can charge and when you should seek legal advice. Keep reading to find out everything you need to know about collection agencies charging interest.
Let’s get straight into it! Yes, a collection agency can charge interest. This means on top of the money that you owe, a debt collector or collection agency can add more interest, bumping the cost of your original debt up.
The interest can be charged up until payment is made, so you must make a payment plan or arrange to settle the outstanding debt as soon as possible.
You are legally obligated to pay this, too, as when your debt is passed to a collection agency, they are the owners of the debt and, therefore, can charge interest if they see fit.
Sometimes, the interest rates will be higher than the interest on the original debt, meaning you can end up paying more than before to try and clear the debt.
You can speak to the collection agency directly to determine the interest rates when they are charged and how best to get the debt down.
It can feel overwhelming, but remember, they want to get that money just as much as you want to get your debt gone, and there is always room for a discussion. You might feel better speaking to a financial advisor who can provide tailored advice for a situation.
You can also have them or a legal professional present when speaking to the collection agency or drawing up a payment plan if you feel it’s necessary. The best thing is to confront and deal with it rather than wait to avoid incurring more interest.
A collection agency can charge its own interest rates, but state and federal laws cap these. As these can vary from state to state, it’s best to check on your state’s website or with financial institutions in your state to find out how much interest collection agencies can charge.
Federal laws like the Fair Debt Collections Practices Act (FDCPA) are responsible for regulating the fees. You can read more about them online or get specific financial advice from an advisor if need be.
While the amount of interest charged can vary from state to state, it is typically dictated by the interest rate stated in your original contract.
You can check this in the terms and conditions section of any document relating to the original debt. Most collection agencies will clarify the interest rate when they contact you about the debt.
If they do not, be sure to ask them for it in writing and verbally if needed. If you suspect that the interest rate is higher than it should be in your state or you do not agree with the amount of debt the collector says you owe, you must contact them for clarification.
There might be an error or more debt than you realize, and the quicker the issue is resolved, the quicker you can pay the debt and avoid higher interest rates.
Similarly, if you think the collection agency does not comply with state, federal law, or both, you need to seek legal advice immediately.
Speak either to your state attorney general’s office or another legal professional. They will be able to offer you tailored advice and can help to resolve the issue smoothly and legally. Remember, you might need to pay for these legal fees yourself.
Yes, having debt owed to a collection agency can damage your credit. Once the debt is passed to a collection agency, it can be reported as a separate account on your credit report, damaging your score as you now have another debt to pay off.
Even after paying off the debt, it can still haunt your credit and cause the score to suffer. You might even find it hard to get other loans, credit cards, or mortgages as a result.
Typically, if you are honest about it and prove you can pay any loan or credit card, lenders are willing to consider your application. It’s best to seek financial advice, though, if you aren’t sure.
After seven years from the original date, the debt and all information can be removed from your credit reports. You don’t need to do anything as this automatically happens.
You can then reassess your credit score and move forward. We recommend using those seven years to try and boost your credit as much as possible.
Alternatively m if the information is not accurate, you can file a dispute on the collection information in your credit report. Depending on the outcome, the information might be updated rather than removed entirely.
Again, you should seek further advice about this to ensure any dispute is handled correctly.
Final word
And just like that, we have reached the end of our article today! As you can see, collection agencies can charge interest, but state and federal laws will cap their rates. They usually follow the interest rates in your original contract but can differ from time to time.
Remember to try and repay this debt as soon as possible and consult financial advisors or debt experts if you have any concerns. They can usually help draw up plans based on your budget and get the debt gone without incurring too many interest charges!
