Credit Card Debt Collection: What Is It and How Does It Work?

By Dan Miller · August 05, 2022 · 8 minute read

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Credit Card Debt Collection: What Is It and How Does It Work?

If you find yourself in a situation where you’re not able to make even the minimum payment on your credit card, your account may get sent to credit card collections. Credit card debt collection is the process where credit card companies try to collect on the debt that they are owed.

The credit card companies may try to collect the debt themselves, or they may hire a third-party credit card debt collection firm to collect. In some cases, the debt owed may be sold to another company, who might then try to collect. Here’s a look at what happens when credit card debt goes to collections.

What Are Credit Card Collections?

Credit card collections is a term referring to the process that lenders go through to try to get paid for outstanding debts they’re owed.

If you know what a credit card is, you’ll know that credit card issuers allow you to make purchases with the promise of eventual repayment. But if you don’t make even the credit card minimum payment, the credit card company eventually may send your debt to collections in an effort to recoup the money owed.

How Do Credit Card Collections Work?

Credit card credit card debt collection is the end result of repeatedly not paying your credit card bills. The best way to use credit cards is to always pay the full amount each month on the credit card payment due date. Even if you’re not able to, you’ll want to at least make the credit card minimum payment.

If you don’t make any payments toward your credit card balance, the credit card company may start the credit card collections process. At this point, a third-party debt collector will assume responsibility for trying to get you to repay the money owed, relying on the contact information the credit card company has on file to get in touch.

Recommended: When Are Credit Card Payments Due

Credit Card Debt Collections Process

Most credit card companies will begin the credit card debt collections process by attempting to contact you directly to pay off the debt. If you haven’t made any credit card payments recently, the bank will likely try to email or send you certified letters. Then, if you still don’t make any payments and don’t arrange for a payment plan with your lender within 30 to 90 days, they’ll likely turn it over to a third-party debt collector.

Most credit card companies do not have the staff or business model to engage in a long-term credit card collection process. That’s why they will usually hire a third-party company or companies to do the actual debt collection. If these companies do not successfully collect the debt, it’s also possible your debt will be sold to another company, which will then try to collect on it.

At any point, one of these companies may formally sue you in an attempt to collect the money from you, one of the many consequences of credit card late payment.

Features of Credit Card Debt Collections

The credit card collections process is not a pleasant experience. Persistent letters, emails, and phone calls are all features of the debt collections process.

At the beginning, when the credit card company itself is handling the collection process, it may be a bit better. However, once your debt has been sold and/or turned over to a debt collections agency, things often become more intense.

What Is a Collection Lawsuit?

If debt collectors are not successful in using phone calls, letters, or emails, the next step is often a lawsuit. A collection lawsuit is when either the debt owner or collector files in court asking you to pay the debt. If they win, the judge will issue a judgment, which could allow the debt collector to garnish your wages or put a levy on your bank account.

It’s important to note that different states have different rules for how long a debt collector has to file a lawsuit. In most states, if you incurred the debt, the debt collector can legally collect it, and if they have the correct amount, they can keep asking you to pay the debt. However, there may be a statute of limitations on how long they can initiate a collection lawsuit. Check with a lawyer if you’re not sure about the law where you live.

Responding to a Collection Lawsuit: What to Know

If you receive a collection lawsuit, you may be wondering if you should respond. In most cases, it’s a good idea to respond to the collection lawsuit, since that requires the owner of the debt to prove their case.

If they can’t show they own your debt and that you’re obligated to pay it, you may have the debt vacated. Further, you may also have your debt discharged if it’s past your state’s statute of limitations.

Consult with a debt relief lawyer if you’re not sure what to do in your particular circumstances.

What Happens If You Don’t Respond to a Collection Lawsuit?

If you don’t respond to a collection lawsuit, it’s possible that the judge will issue a default judgment against you. A default judgment means that the plaintiff (the debt collector) automatically wins, since the defendant (you) did not respond to the lawsuit. In that case, the debt collector or owner now has the legal right to garnish your wages and/or attempt to go after the money in any of your bank accounts.

How a Debt in Collection Affects Your Credit

Having debts that are in collection will have a negative impact on your credit score. The more recent the date of collection, the more of a negative impact it will have on your credit score.

In most cases, a debt that is in collection will stay on your credit report for seven years (though note this differs from how long credit card debt can be collected).

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Guide to Dealing With Credit Card Debt in Collection

If you have a debt that’s already in collection, you may want to consult a lawyer that specializes in debt relief. While it may seem daunting to hire and pay for a lawyer, they may be able to help you settle the debt for a fraction of the original amount or even completely discharge the debt.

Taking Charge of Your Finances

If you’re worrying about credit card debt collections, you may feel like your finances have spun out of your control. Here are some tips to take charge once again:

•   Only spend what you can afford to pay off: One of the best tips for using a credit card is to avoid making purchases that you won’t be able to pay off each month. This will stop your spending from spiraling into debt.

•   Always try to pay off your credit card in full: When you pay your full credit card statement amount each month, you stay out of debt and are more likely to have a good or excellent credit score. Although credit card debt can be hard to pay off, doing so can have a positive impact on your credit score.

•   Address any debt head on: If you find yourself in the position of having credit card debt, the best thing to do is to openly acknowledge your situation and make a plan to pay off your credit card bill. Start a budget, cut expenses if needed, and use any monthly surplus amount to pay down your debt. It’s also smart to stop spending on your credit card until you’ve reduced or eliminated any outstanding balance.

The Takeaway

If you don’t pay the balance on your credit card, your credit card issuer may begin the credit card debt collection process. This may mean that they contact you directly, hire a third-party collection company, or even sell your debt to another company. Having a debt in collections will have a negative effect on your credit score and is something to avoid if possible.

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What happens when credit card debt goes to collections?

If you have an outstanding credit card balance that goes to collections, the credit card company likely will ask you to make at least the minimum payment on the debt. This may continue for the first few months, after which point they’ll likely hire a third-party debt collector. The debt collector will then start trying to collect the debt from you, which may include filing a lawsuit against you.

Can a debt collector force me to pay?

A debt collector company cannot directly force you to pay a debt. However, depending on the statute of limitations in the state you live in and how long ago the debt was incurred, they may be able to sue you in court. If they win, the court may issue a judgment, which would allow them to collect by garnishing your wages and/or levying your bank account.

How long can credit card debt be collected?

In most states, as long as it’s a valid debt, there is no statute of limitations for how long a debtor can ask for repayment. However, many states do limit how long legal action can be taken to collect the debt. Additionally, the Fair Debt Collection Practices Act details what a debt collector can and cannot do while attempting to collect a debt.

Do debt collections affect your credit score?

If you have a debt in collection, especially one that has recently gone into collections, it’s likely to have a severe impact on your score. This is because payment history is one of the factors used in the calculation of your credit score, and credit card debt in collections is considered far past due.

Photo credit: iStock/courtneyk

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