Paying Off Credit Card Debt That’s Been Sold

When you fail to repay credit card balances you owe, those unpaid debts are eventually sold to third-party debt collection agencies. This means you no longer owe the credit card company for the balances you racked up, and that your debt has been transferred to debt collectors instead.

But, do you actually have to repay the funds at that point? You can decide you don’t want to repay the debt, and you can even dispute it if you believe it’s not yours. However, failing to repay money you owe can cause considerable harm to your credit score. Debt collectors can also sue you for unpaid credit card bills, which can lead to wage garnishment or money being taken out of your bank account.

Why is credit card debt sold to debt collectors?

Credit card companies may pursue a debt as long as they believe there is a good chance you’re going to pay the bill. Typically, their strategy involves an in-house collection process that aims to get you back on track with repayment. At a certain point (usually 90 to 180 days later) when it is no longer profitable to carry the debt, credit card companies will take steps to get unpaid debts off their books so they can focus on more profitable components of their business.

This is where debt collection comes into play. According to the Consumer Financial Protection Bureau (CFPB), debt collectors are “a person or company that regularly collects debts owed to others or who has the primary purpose of collecting debts.” These companies can also be called debt collection agencies, debt collection companies or debt buyers, per the CFPB.

Debt collectors typically purchase unpaid debts for a lower price than the amount owed with the goal of getting you to pay enough of the money back so they can turn a profit. Unfortunately, debt collectors are known for being aggressive in their efforts, which can include regular mailings, phone calls and other types of contact.

Do you still have to pay?

Until unpaid credit card debt is paid or ultimately forgiven, it is still owed. However, several factors can impact a debt collector’s ability to collect from you. Here are the two most important:

Statute of limitations

If the debt becomes too old, your state’s statute of limitations on debt may effectively make the debt uncollectable. This doesn’t mean you don’t owe the money. Instead, reaching the statute of limitations threshold means you can’t be taken to court and compelled to pay through a judgment.

This is why debts getting close to this timeline often see ramped up activity from debt collectors. These agencies are well aware of the statute of limitations in your state, and they become anxious about getting repaid as time starts to run out.

Proving it is really your debt

Also be aware that debt collectors can be forced to prove the debt is yours before moving further in the collection process. If you’re being pursued for a debt that is incorrect or money that’s not even owed by you personally, you can formally dispute the debt with the debt collection agency and the credit bureaus.

The CFPB says that disputing the debt in writing within 30 days of receiving information from the debt collector is your best bet. In this case, the debt collector must send you proof that the debt is yours, such as a copy of an unpaid bill. The debt collector is then legally barred from contacting you until they’ve responded with this verification.

Do your rights change if your debt is sold?

If your debt is sold, the law requires that you receive written notice within five days of the collector’s initial attempt to contact you. That debt validation letter must include the amount of the debt, the original creditor and a statement of your right to dispute the debt.

Other protections from the federal government help protect you from aggressive practices debt collectors are known for. According to the Fair Debt Collection Practices Act, for example, it’s against the law for collection agencies to misrepresent themselves, the amount you owe or their plans to get you to pay. There are also limits to the legal actions a collector can take and to the collection fees they can add. If the statute of limitations in your state has passed on the debt, for example, a debt collector may not be able to take you to court, in which case threatening a lawsuit is illegal.

Can overdue credit card debt be forgiven?

There are circumstances where it may be possible to negotiate a debt settlement on your own. You may be able to do this with your credit card company before your debt is sent to collections, or you could negotiate with the debt collector after the fact.

The Federal Trade Commission (FTC) says you may be able to settle your debt for less than you actually owe, and to work out an agreement so you’re not sued for unpaid amounts. However, the agency says to get any agreement you make in writing. Also note that agreements that include late payments or unpaid debt amounts can still remain on your credit reports and harm your credit score in the process.

Another alternative is bankruptcy, which should typically only be used as a last resort when you cannot get out under the weight of massive credit card debt and other unpaid bills. While a collection item will drop off after seven years, chapter 7 bankruptcies stay on your credit reports for up to 10 years. This means you can spend a decade after bankruptcy struggling with poor credit and trying to rebuild it.

What to do if you’re struggling with credit card debt

If you’re struggling with credit card debt, your best bet is dealing with the issue before your debt is sold to collections. Consider these tips to improve your situation before it gets worse.

Ask your credit card issuer for help

If you’re struggling to keep up with credit card bills, consider reaching out to your card issuer as soon as you can. The CFPB says most card issuers will try to work with you on a solution in emergency situations. For example, you may be able to get a lower monthly payment, more time to pay your bill, a lower interest rate or certain fees waived if you ask.

Cut spending and sell items you don’t need

You can also make some changes at home to free up some cash. Moves that can help you pay off debt include implementing a bare-bones budget and only spending what you must until you catch up.

Consider having a garage sale or selling unessential items online to generate income you can use to pay down your debt. You might consider a temporary second job to do the same.

Contact a credit counselor

You can also reach out to a credit counseling agency for assistance, and preferably one you find through the National Foundation for Credit Counseling. You can also check the quality of credit counseling agencies you’re considering with your state attorney general and local consumer protection agencies.

Credit counseling agencies are nonprofit companies that can help you figure out ways to reduce spending and pay down unpaid bills. They also help you create a budget that works with your lifestyle while figuring out areas where you may be making poor financial decisions that make it difficult to get ahead.

Credit counselors may also offer a debt management plan that lets you repay amounts you owe through them with a fixed monthly payment over up to 48 months.

The bottom line

You may not have to pay off credit card debt that’s been sold, but you’ll deal with all sorts of headaches if you go this route. This can include constant contact from debt collectors and damage to your credit score while you wait for the negative information to drop off your credit reports. You may also be sued for the unpaid debt before you get that far in the process. If the lawsuit is successful and the creditor gets a court order, they can garnish your wages until the debt is paid off or even take money out of your bank account.

Ultimately, this is why your best bet is dealing with debts you owe before they wreck your financial life. This can mean negotiating debts with creditors, getting on a payment plan or working with a credit counselor to figure out your next steps.