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If you’re trying to clear up your credit by paying off a collection account, beware: you may owe more than you thought. A Credit.com reader asks:

I have an old credit card collection that started as a $4,000 charge-off and the collector is telling me that I now owe double that amount.  Can collectors arbitrarily charge whatever they want and call it “interest and fees”? Is there a limit to what they can charge?

I want to pay the debt, and I now have a great job with decent income to do so, but I don’t want to pay more than I actually owe. If possible, I’d like to negotiate a settlement… I’m considering offering 25% of what they’re saying I owe but I’m not sure if that’s acceptable and was hoping you might have some advice for negotiating with a collection agency to settle and clear a debt.

Yes, debt collectors can often charge interest on accounts in collection. How much they can charge depends on a couple of different factors. Mark Shiffman, spokesman for ACA International, the largest third-party debt collection trade group, explains:

As a general rule, the addition of any interest, services fees, collection costs or other expenses incidental to the original debt is permitted when “such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. 1692f(1) [§ 808(1)]. However, collection laws on both the federal and the state level also speak to this issue so it is critical for both creditors and the collection agencies that they do business with to be aware and comply with these laws, not only when an account has become delinquent but also in the stages of drafting the contract that creates the debt.

Generally, the contract you agreed to when you took out the loan or signed up for the credit card will govern how much interest can be charged on an account, as long as it’s not larger than the amount allowed under state law. Otherwise, state law prevails. The majority of states (41) have laws that address the interest that can be charged, while nine remain silent, Shiffman notes. Those nine are: Alabama, Alaska, Florida, Indiana, Kentucky, Maryland, Montana, Ohio and South Dakota.

How Much Is Too Much?

However, just because collectors can charge interest on collection accounts doesn’t mean they always calculate it correctly. And consumers like our reader are often in the dark when it comes to understanding whether the amount the collector tells them they owe is accurate. The CFPB reports that in 2012, 8.8% of debt collection complaints, or 9,034 complaints, asserted that collectors demanded interest, fees or expenses that were not owed (such as unauthorized collection fees, late fees and court costs).

“It is really murky,” says Michael Bovee, a debt negotiation expert and founder of Consumer Recovery Network. “There aren’t any uniform requirements for debt collectors and debt buyers to show how fees and interest have accumulated.”

He says that most consumers either try to find out where the figures are coming from by disputing a debt and requesting verification (which, unfortunately, doesn’t always lead to more clarity) or through the discovery process if a consumer challenges the debt or a debt collection lawsuit.

Consumer law attorney Fred Mertens says that he’s seen situations where collectors get it wrong. In Washington state where he practices, for example, he says there is a “statutory interest rate of 12% from the date of alleged charge off (but) that’s also misleading because the collector often didn’t acquire an interest in that account until much later.” As a result, debtors may be overcharged.

There’s yet another problem. Consumers who enter into payment arrangements with a collection agency may make payments for months or years, only to discover the balance has barely budged due to accumulating interest charges. Since consumers don’t get statements the way they do with their credit card bills, they may assume that their entire payment is going toward principal, when in fact a chunk of it is going toward interest.

What Can Debtors Do?

If you find yourself facing collection for a debt you believe has been inflated, here’s what to do:

If you aren’t sure the amount the collector is stating you owe is correct, dispute it. Request written verification of the debt. This is your right under the federal Fair Debt Collection Practices Act. You may not get all the details you need to ascertain whether the amount is correct, but it doesn’t hurt to ask.

Get your free annual credit reports. Check the balance the original creditor, such as the credit card company, listed as “charged off,” and compare it to what the debt collector is asking you to pay. If there has been a huge jump in the balance owed, that may be a clue that someone’s math is off.

Remember, collection accounts are often negotiable. If you do think the amount they are asking for is correct, but you can’t afford to pay it, try to negotiate a settlement. You may be able to pay substantially less, especially if you are dealing with a debt buyer on an older debt.

Clarify payment arrangements. If you make a deal to pay the collector over time, ask the collector about interest or other charges. Then get it in writing. “Get all the terms in writing including an amortization schedule showing how the balance is going to be settled,” says Martens.

Complain. If you believe the debt collector is inflating the amount you owe, you can reach out to the Consumer Financial Protection Bureau for help. At a minimum, your complaint will be collected for their annual report to Congress on debt collection. But they may also be able to help you resolve your issue with the collector.

Get legal help. A consumer law attorney may be able to help. Attorneys with experience in debt collection cases will often offer a free or low-cost consultation to help you figure out if the debt collector may be breaking the law in its efforts to collect. If so, you may be entitled to damages and the collection firm may have to pay your attorney’s fees.

Back to our reader’s question: Is it possible for a debt to double in a few years? Yes. If a debt collector charges 26% interest on a $2,000 debt, for example, in three years the balance could grow to more than $4,000. That’s one of many reasons to monitor your credit using a tool like Credit.com’s free Credit Report Card. By monitoring your credit score each month, you’ll find out if new collection accounts appear on your credit so you can catch them before they get out of control.

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  • Jeanine Skowronski

    The debt collector should send written verification of the debt, outlining what you owe in regards to your outstanding balance and interest and fees. They are required to send this by law under the FDCPA, so if they have not, request they do so. This will help you pinpoint what it is they are contesting you owe — and whether you owe it. You can find more on dealing with debt collectors here:


    Now, if the bill is legitimate, you can try negotiating the amount down with the collector. You can find some tips for doing so here:


    Also, more information on how dealing with future medical bills here:




  • http://www.credit.com/ Credit.com Credit Experts

    You can still be sent to collections even if you never got a bill (more on that here), and when something is sent to collections, the debt collector can add interest and fees. If you’re unsure about the amount the collector is charging, request a written verification of the debt. You might find this article helpful: http://blog.credit.com/2013/09/can-a-debt-collector-double-my-debt/

  • LissaKay

    In the process of taking out a home equity loan, we found out that there was a judgment for a debt entered by default on my husband – this is before we were married – with a lien on the house. We contacted the collection agency so we could settle it, know there is zero chance of fighting it. The judgment does NOT include interest, but the collector says they can charge interest, and in doing so, the amount they will accept to settle the judgment and release the lien on the house is triple the amount of the judgment. Can they legally do this? Or are they just trying to squeeze us for more money?

    • http://blog.credit.com/ Kali Geldis

      Hi LissaKay —

      Your exact scenario is actually being debated currently in the courts:

      It may be best to contact a consumer law attorney who specializes in dealing with debt collectors to fully understand your rights since this is an area in flux. But generally, it’s not illegal for collectors to charge interest on your debt.

      • LissaKay

        Thank you, Kali. Not the best news, but it gives us a direction to go in.

  • Elizabeth

    I have a question. My boyfriend was caught in the silver state helicopter scandal. Because the statute of limitations has expired we have been able to remove the debt from his credit report. However, we have recently received a bill for $44,000 in interest. Does the interest not fall within the statute of limitations as well?

  • Jan Johnson

    My granddaughter just got married. Seems her husband owed a Dr’s office $6.00 yes that is six dollars. He is getting collection calls that says he owes $182.00. This is in the state of Alabama. Is this legal?

  • britelvis

    1. February 03 2015 receive letter from HOA Lawyers asking for $2551.25 with amount due of $1789.34 for HOA assessment fees (principal debt) contacted the HOA asking for a breakdown of the HOA assessment fees due and dates. Sent a Certified letter also Never got a response back from either party 2. Decided to act myself and Pay the HOA Assessment Fees $1789.34 without hearing back to stop my home going in foreclosure due to no response.3. HOA Check was cashed 4. April 20 2015 Receive Letter from HOA Lawyer asking for the sum of $3070.40 with now the assessment HOA Fees gone up to $1959.34 (principal debt) called HOA Lawyer as this was the name on the letter April 23rd 2015 and asked why the assessment amount had changed and also that why had the payment that I had been made had not been took off the account. He informed me that he had not received the updated ledger from the HOA and was not aware that a payment had been made. He would look into it and call me back in 3 days and not to worry as the account would be put on hold for the moment, I called back a week later with no response in getting through to Steve so I thought he was still looking into it and decided to wait.5. Receive Email From HOA Lawyer dated 8th July 2015 asking for me to call the office. Called HOA Lawyer and was told that there was an amount of $3070.40 due on the account I then told Angela that a check had been sent to the HOA for $1789.34 and that it had been cashed again HOA Lawyer was not aware of any payment had been made and would look into the matter and get back to me in a few days. I then called a few days later and was told that the person dealing with the HOA Ledger was away and was awaiting their return. 6. 24th July 2015 Received an email from HOA Lawyer 3 weeks later and was told that the amount now owed was $1319.29 asked why this was now owed and did not know why this was the figure I also asked why the HOA Amount that was originally owed had jumped from $1789.34 to $1959.34 she informed me that an additional HOA Assessment fee had been added to the account. I asked why when I had not been informed of this and she did not know. I also asked Angela would the HOA account be up to date once I get a final figure Angela did not know, I asked again for a final figure that needed to be paid and I was informed that the ledger as of today is not correct and more fees and HOA assessment fees need to be added and again I will had to wait another 3 days to get a final figure. Angela then put me through to HOA Lawyer who asked me to document the situation and email to him. Was informed that he would be out of the office Monday 27th July through to Thursday 30th 2015 before I could get an answer. asked would I be charged yet more interest for those 4 days and was told the charges would be nominal fees.7. Spoke to HOA LAwyer many times to get a final figure but I am always told that they need another ledger this ledger never appears and until this day 24th July 2015 have never been given a final figure or been able to pay this final amount yet I am repeatedly charged fees and interest even though a check for the Initial HOA assessment fees has been received and cashed.

    Today Received a letter again from HOA LAwyer demanding that i pay $1983.19 within 45 days before they foreclose on my home.

    • http://www.credit.com/ Credit.com Credit Experts

      We are not lawyers, and it sounds as if you need to consult one. We hope you will.

    • Jennifer Stephen-Ogbe

      I am curious to know how you resolved this matter. Any resolution to share?

  • http://www.Credit.com/ Gerri Detweiler

    This is a difficult question for us to answer. We’re not attorneys, and the issues of what these collectors can charge is often a matter of state law and the contract. But it’s not always spelled out clearly. Sometimes it becomes a matter of case law; what fees have courts found to be permissible and which ones are not? I wish I could give you a more straightforward answer.

  • chris slaman

    A debt collector has sent me a notice from a debt from 6 years ago. because I have disputed this debt because it was supposed to be included in my chapter 7 BK. Since my dispute they tell me I owe another 500 in interest. Granted there has been no contact with this collector in 6 years.

    • http://www.Credit.com/ Gerri Detweiler

      Chris – I am not sure I follow. Did you dispute this debt with the credit reporting agency first and then got a collection notice? If so, you can dispute it directly with the collection agency and explain it was included in your bankruptcy. If they continue to try to collect, you’ll want to contact your bankruptcy attorney as their actions may be illegal on a couple of different fronts.

  • Beverley1988

    I owe a state college money. It isn’t for a loan, I am making payments regular payments on my student loans, and I don’t owe any money to the dept of education. Actually, I just got a notice that I over paid the DOE and will be getting a check soon. But I owe the college $7,000. They sent it to collections and I immediately got a notice saying that the new amount I owed is somewhere in the 11,000 dollar ballpark. I live in WA state. Is there any way this is correct? Are they allowed to just add half again the amount of the original debt? What can I do?

    • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

      Adding 50% to unpaid student loan debt is not normal, but unfortunately adding 25% to defaulted debt that remains unpaid long enough is.

      Can you budget for payments on the loan using your current monthly cash flow? How much can you commit to each month?

  • http://www.Credit.com/ Gerri Detweiler

    My understanding is that the credit report balance would not necessarily be evidence of exactly what you owe. (Though you could dispute the balance on your credit report as wrong, but that may just update it with the larger balance so I’m not sure what you would accomplish with that .)

    In many states, collection agencies can continue to charge interest on past due debts. So if a settlement is the way you need to go then I would encourage you to try to work with the collection agency to accomplish that. I’d suggest you check out this article: How Do I Get a Debt Collector to Negotiate With Me? and if you still have questions, Michael would be a great resource. You can post your questions there.

  • http://www.credit.com/ Credit.com Credit Experts

    Chelly —
    Is this debt legitimate? And do you know for sure this collector owns the debt? Those are important things to know before you consider paying. You can read more here (and find more resources using the search tool at the top right): The Ultimate Guide to Debt Collectors

  • http://www.Credit.com/ Gerri Detweiler

    Often they can add interest and fees, and how much is a matter of state law and the contract. I don’t have a good resource to point you to that outlines the interest that is allowed, but it’s a safe bet to say that states haven’t done a lot in the way of consumer protection here. There is also the question of whether they have correctly calculated the interest. If you want to try to fight this on the grounds that the amount is wrong you may need to at least talk with a consumer law attorney. The other option might be to settle for a smaller amount if they will work with you – if they do you’ll need to get that in writing! Finally, you could also consider filing a complaint with the CFPB.

  • http://www.Credit.com/ Gerri Detweiler

    In many states, it is legal for collection agencies to add interest to the debt even if you didn’t explicitly sign a contract with the collection agency agreeing to that. However, that doesn’t mean the amount the collection agency is trying to charge you is correct. Trying to figure out exactly what the correct amount is can be difficult though.

    Perhaps the real question here is whether you think you can afford to resolve this debt. You didn’t mention how much it is, but if it’s more than you can realistically resolve in a few years, you may want to talk with a consumer bankruptcy attorney. You could also try consulting with a consumer law attorney to find out what the law is in your state with regard to interest on these debts. (You could also try checking with your state attorney general’s office, but I don’t know how hard it will be few to track that information down.)

  • PhiaD

    I signed a commercial lease and fell behind on rent payments. The landlord allowed me to stay. In the mean time, he has put the building up for sale and has a potential buyer. To ‘close the deal’, He lumped the back rent and utility payments into one note to be paid over 4 years with 4% annual interest on the balance. Additionally, he states he can charge an additional 5% interest in late fees for the first 7 days and an additional 5% late fee for after and for each 30 days the payment is late. He also demanded an initial down payment of $2500, which he claims are back utility payments. The total debt is $22,500.Interest after 4 years will equal $1675.89. He told me I had until the 16th to make the payment, but locked me out on the 13th. I negotiated a payment to regain entry.

    Nothing in the previous lease states such interest or what actions will take place in the event I default on the lease or debt. I am in the state of Texas. Any help for me. Thank you in advance.

    • http://www.Credit.com/ Gerri Detweiler

      Commercial credit and consumer credit are often treated much differently under state consumer protection laws. There is usually a presumption that businesses are better able to look out for their own interests I suppose. You will need to get an attorney to look this over for you.

  • http://www.Credit.com/ Gerri Detweiler

    Thanks for the update – keep us posted!

    • cinjj1

      The 23rd will be 30 days since we got the green mailing card back. So far nothing from NCO Financial. Today is 10/20/14. Now 2 of the items have also reached the 10 year stat. of limitations as well. I will check back after the 23rd. Thanks

    • cinjj1

      So we sent the letter requesting debt validation we received a letter back, post dated the day before the 30 days limit. The 30 days was the 23rd and the letter was post marked the 22. They are requesting more information from us. I think they are stalling for more time. I did send an email to the director of driving license for the state of Washington. Depending on who we talk to at NCO Financial, we get a different amount due. My next step to get the drivers license released is the state attorney general. What a joke these peple are. Keep you posted!

      • http://www.Credit.com/ Gerri Detweiler

        Please do!

  • http://www.Credit.com/ Gerri Detweiler

    Please do let us know what happens!

  • http://www.Credit.com/ Gerri Detweiler

    I am afraid I simply don’t know the details of each state’s laws with regard to traffic tickets. But I do think you need to find out whether the amount they are charging you is correct and whether the statements the collection agency is making with regard to these debts are accurate.If they are misrepresenting the nature or status of the debt you may be able to exercise your rights under the Fair Debt Collection Practices Act and the collector will have to pay the attorney’s fees if they are breaking the law. Ideally I think it would make sense for you to talk with a consumer law attorney who regularly represents consumers in debt collection cases and is also familiar with these types of tickets. Start at NACA.net to see if you can find one in your area who has the relevant experience.

    Sorry I couldn’t be more specific about the tickets themselves and thanks for your comments about the blog and the site!

    And by the way, a collection account may only be reported for seven years plus 180 days from the date you first fell behind with the original creditor. (In this case, when the fine for each ticket was due but wasn’t paid.) That’s true regardless of whether it has been paid or not. So make sure you are staying on top of your credit. You can get a free credit score here.

  • cinjj1

    Can NCO hold a drivers lisc. hostage for other items they are holding in collections even if the state of Washington says..pay this and we will release it. We have paid all but 4 and 2 do not pertain to the DL one of those is over 10 years old the other will be 10 in Oct. the 2 that the state says need to be paid went from 1800 bucks the middle of July 2014 to 3000 the first of August. Where to now? Consumer complaints? I have no problem writing to anyone and everyone if just one person can guide me.

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry but I just don’t understand the situation. What is the debt for?

  • http://www.Credit.com/ Gerri Detweiler

    Do you have copies of your credit reports showing the item? How about either hiring an attorney or going to small claims court to threaten a credit damage lawsuit if they won’t remove it?

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry we can’t help but you’ll need to get advice from a consumer law attorney familiar with the laws that apply to this judgment. You may want to go to Naca.net to find an attorney who can answer your questions.

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