5 things to know if your credit card debt is in collections

Credit card debt has become a pressing issue for millions of Americans, with recent data showing a troubling surge in maxed-out accounts and delinquent payments. And while it's easy to fall into credit card debt in any economic environment, the current high-rate landscape has only exacerbated the problem, making it more challenging for cardholders to keep up with their payments. 

With the Federal Reserve keeping rates high to combat inflation, credit card APRs have been climbing, and are now nearing record highs. In turn, cardholders who are carrying balances are accruing interest at an alarming rate, making it increasingly difficult to chip away at their principal debt. 

If you've been struggling with credit card debt and have accounts that have gone into collections, it's crucial to take action sooner rather than later. Ignoring the problem won't make it go away and can lead to severe long-term consequences for your financial health. By fully understanding your situation, though, you may be better prepared to regain control of your finances. 

Want to get rid of your credit card debt now? Learn more about your top debt relief options here.

5 things to know if your credit card debt is in collections

Here are a few key things you should know if your credit card debt is in collections:

Fees and charges are likely still accruing

When your credit card debt is in collections, it's easy to assume that the balance has been frozen. However, this is generally not the case. Many collection agencies continue to add interest, late fees and other charges to the outstanding balance. This means that even if you're not actively using the card, your debt could still be growing.

That's why it's essential to request a detailed breakdown of your current balance from the collection agency. This will help you understand exactly what you owe and how much of it is the original debt versus added fees and interest — which can help you make decisions about how to proceed with repayment or negotiations.

Don't let the fees continue to accrue. Take steps to get rid of your high-rate credit card debt today.

Your credit score is taking a serious hit

Having a credit card account in collections can have a devastating impact on your credit score. A collection account is considered a major negative item on your credit report and can remain there for up to seven years from the date of the first missed payment that led to the collection.

The exact impact on your score can vary, but it's not uncommon for a collection account to cause a drop of 100 points or more. This significant decrease can affect your ability to secure new credit, rent an apartment or even land certain jobs. It can also result in higher interest rates on any future loans or credit cards you might qualify for. 

More serious repercussions could be on the horizon

While having your debt in collections is already a serious situation, it's important to understand that things could escalate further if left unaddressed. Collection agencies have several tools at their disposal to recover the debt, and one of the most serious is pursuing legal action against you.

If a collection agency decides to sue you for the unpaid debt, they can obtain a court judgment. This judgment gives them additional powers to collect the debt, including wage garnishment, bank account levies or even property liens, all of which can have severe and long-lasting consequences on your financial stability. 

You have rights in this situation

It's important to remember that you also have rights in this situation. The Fair Debt Collection Practices Act (FDCPA) provides consumers with protections against abusive, unfair or deceptive practices by debt collectors. Some key rights under the FDCPA include:

• The right to request debt verification
• Protection from harassment
• Control over communication
• Honest representation

Understanding and asserting these rights can help you navigate the collection process more effectively and protect yourself from unfair practices.

There are solutions to consider

While dealing with credit card debt in collections can feel overwhelming, there are several potential solutions to consider, including credit card debt forgiveness, also known as debt settlement. This option involves negotiating with the collection agency to pay less than the full amount owed. 

Credit card debt settlement can be particularly effective for accounts in collections, as creditors may be willing to accept a lump sum payment for less than the full balance rather than risk receiving nothing. However, it's important to get any settlement agreement in writing and understand the potential tax implications of forgiven debt.

Some collection agencies may also be willing to set up a payment plan that allows you to pay off the debt over time. This can make the debt more manageable and help you avoid more severe consequences. 

The bottom line

Having credit card debt in collections is a serious financial situation, but it's not an insurmountable one. By understanding the ongoing impact on your finances, knowing your rights and exploring available solutions, you can take steps toward resolving your debt and rebuilding your financial health. But the key is to take action rather than ignoring the problem, so create a plan of action as soon as possible and then stick to it.