How Much Do Collection Agencies Pay for Debt?

When you stop paying a credit card or creditor, they will try to contact you. If you don’t respond, your creditor will charge off your account.

A charge-off destroys your credit score. Your debt will likely land with a collection agency.

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Collection agencies bought your debt for 4% of its value. Don't let them collect 100% through a judgment. Settle now and save money before they garnish your wages.

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Creditors sell charged-off debts to collection agencies. Collection agencies buy these debts for pennies on the dollar. Once they own your debt, they resume collection efforts. They may even file a lawsuit against you.

The Debt Buying Process Explained

Collection agencies specialize in certain types of consumer debts. Some agencies focus on credit card debt. Others buy medical debts or utility bills.

Your location and debt age matter too. Collection agencies need licenses to operate in specific states.

Many agencies build relationships with creditors. The creditor shares its list of charged-off debts. The collection agency reviews the list and selects which debts to purchase. Creditors often sell debts in large bundles.

Collection agencies pay far less than the debt’s actual value. Most agencies pay only $0.04 for every $1 in consumer debt. Debt buyers pay 4% of the original debt value on average. Then they collect on the full amount.

The low purchase price allows collection agencies to profit. Not all consumers respond to collection notices. Some debts remain uncollectible.

Example: Bold Credit charged off 1,000 customer accounts this quarter. Customers stopped paying bills for six months or longer. The total outstanding consumer debt equals $3,000,000. All customers live in California and Nevada. SoCal Collections operates in both states and specializes in credit card debt. SoCal Collections offers Bold Credit $120,000 for the accounts. That’s 4% of the outstanding value. Bold Credit accepts the offer and sells the accounts.

How Collection Agencies Make Money on Your Debt

Once a collection agency purchases charged-off debt, it assesses each obligation. The agency starts the collection process immediately.

You’ll receive an initial communication by phone, email, or letter. The collection agency must provide a written statement. The statement shows the amount you owe and the original creditor’s name.

The Fair Debt Collection Practices Act gives you 30 days to dispute the debt. If you don’t file a dispute, the agency assumes the debt is valid. They report your account to the credit bureaus.

You’ll receive multiple phone calls and letters from the collection agency. If you don’t respond, the agency may sue you.

A successful debt lawsuit gives the collection agency a judgment against you. They can use the judgment to garnish your wages. They can also seize your bank account.

Wage garnishment significantly reduces your income. Some states allow judgment holders to garnish up to 25% of weekly wages.

You must avoid a judgment if possible. Wage garnishment makes it harder to afford housing and food. Your strict budget becomes even tighter.

Why You Should Settle Your Debt

Collection agencies pay very little to purchase your charged-off debt. They still try to collect the entire amount from you.

You should make a payment arrangement with them. Repay the balance if you have money available. Otherwise, the collection agency will sue you.

Our partner Solo can help you settle your debt before going to court.

How to Settle Your Debt and Avoid Court

You may want to settle the debt before going to court. Contact the entity suing you right away.

Let them know you’re willing to work out a payment arrangement. Most debt collectors prefer to settle instead of proceeding with a court case.

Going to court requires collectors to take time away from regular duties. The outcome of a court case isn’t guaranteed. A judge may dismiss their case or rule in your favor.

Remember, many debt collectors purchased your debt for 4% of its original amount. If you offer to pay 50% of the debt, the collector still makes a huge profit. Debt collectors usually accept settlement offers.

Before offering to settle, know what you can afford to pay. If the creditor accepts your offer, you’ll need to pay quickly.

Suppose you don’t have money for a lump-sum payment. Try to negotiate a payment plan. Creditors and debt collectors often agree to payment plans. They prefer some money to no money at all.

Settlement Tools That Work

Debt settlement doesn’t have to be complicated. You can send and receive settlement offers until you reach an agreement. Our partner Solo helps you negotiate directly with collectors.

Know Your Rights When Dealing With Collectors

The Fair Debt Collection Practices Act protects you from abusive collection practices. Collectors cannot harass you or threaten you. They cannot call you at unreasonable hours.

You have the right to request debt validation. You can demand proof that the debt belongs to you. You can dispute the debt within 30 days.

Collectors must honor your requests. If you ask them to stop calling, they must comply. They can only contact you by mail after that.

You also have the right to respond to a lawsuit. Fighting back forces collectors to prove their case. Many collection lawsuits get dismissed due to lack of evidence.

Frequently Asked Questions

How much do debt collectors pay for old debts?

Debt collectors typically pay around 4% of the original debt value. For every $1 of consumer debt, collection agencies pay approximately $0.04. This low purchase price allows them to profit even when consumers settle for less than the full amount.

Can I settle my debt for less than I owe?

Yes, you can often settle debt for 50% or less of the original amount. Since collection agencies bought your debt for only 4% of its value, they still make a significant profit when you settle for half. Collectors prefer settling to going to court.

What happens if I ignore a collection agency lawsuit?

If you ignore a collection agency lawsuit, the court will likely issue a default judgment against you. The collection agency can then garnish up to 25% of your weekly wages or seize your bank account. You should respond to the lawsuit or settle the debt instead.

How long do I have to dispute a debt with a collector?

The Fair Debt Collection Practices Act gives you 30 days to dispute a debt after receiving the initial written notice. If you don't dispute the debt within 30 days, the collection agency assumes it's valid and can report it to credit bureaus.

What should I do if a collection agency sues me?

You should respond to the lawsuit immediately and consider settling the debt. Contact the collector to negotiate a payment arrangement or settlement offer. Most collectors prefer to settle rather than go to court, especially since they purchased your debt for only 4% of its value.