Collection agencies frequently buy debts from original creditors, then gain a profit if the debtor ever pays. Being pursued by a debt buyer can be a stressful experience, particularly as interest accumulates. A collection agency can't arbitrarily charge interest that's not authorized by your original agreement, but it can continue to charge interest at the rate allowed in your agreement.
Your Original Credit Agreement
The agreement with your original creditor -- the one you signed when you first opened the account -- should be your first stop in determining your interest rate. If the contract authorizes a higher interest rate if your account becomes delinquent or goes into collections, the creditor can charge this rate each month that the account isn't paid. If the contract doesn't specifically allow such a practice, though, you can't be charged interest above and beyond the amount your original creditor charged.
Even if your contract doesn't authorize additional interest, it's very likely you'll have to pay some interest -- usually the amount you originally paid on the card. If you make a settlement agreement with the debt buyer, you may have to sign a new agreement that authorizes additional interest payments.
Other Fees and Penalties
In addition to interest, you could be stuck paying late fees and, if your contract authorizes them, a collection fee. Most credit card agreements also require that the debtor pay attorney's fees if the creditor or a debt collector files a lawsuit and the debtor loses. These fees can quickly rise to thousands of dollars, even if you don't have to pay interest fees.
You may be able to negotiate a new interest rate with the debt buyer by settling the debt for less than what you owe, particularly if the debt is very old. However, settling can be an unwise strategy if you're nearing the statute of limitations because any payment you make will reset the statute, making it easier for you to be sued. Settling may also adversely affect your credit, but if your account is already in collections, your credit is likely already damaged.
Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.