Start My Answer

How Much Do Collection Agencies Pay for Debt?

Sarah Edwards | May 26, 2023

Sarah Edwards
Legal Expert
Sarah Edwards, BS

Sarah Harris is a professional researcher and writer specializing in legal content. An Emerson College alumna, she holds a Bachelor of Science in Communication from the prestigious Boston institution.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Have you ever wondered how collection agencies obtain consumer debt? On average, debt collection agencies only pay 4% of the original debt value, while they collect on the full amount. This means debt buyers can make a huge profit if you pay them your full debt. SoloSuit explains how debt collection agencies profit from buying up cheap, overdue consumer debts.

When you stop paying a credit card company or another creditor, like a utilities or telecommunications provider, it will try to get you back on track with your payments. If you don’t respond to these efforts, your creditor will likely charge off your account.

A charge-off will wreck your credit score, and a charged-off account will likely end up in the hands of a collection agency.

Creditors often sell charged-off debts to collection agencies, especially when they think it's unlikely that the consumer will repay the entire debt. Once the collection agency buys the debt, it will resume collection efforts against the consumer, which may include a debt lawsuit.

If you’ve been sued for debt, debt settlement can help you save money and avoid going to court. SoloSettle makes the debt settlement process easier.

Settle with SoloSettle

Make an Offer

The debt buying process for collection agencies

Generally, collection agencies specialize in certain types of consumer debts. For instance, a collection agency might purchase only credit card or medical debts. Some agencies specialize in unpaid utility and telecommunications bills.

In some cases, the consumer’s location and the age of debt play a role, especially if the collection agency only holds licensure in certain states.

Many collection agencies form relationships with specific creditors. The creditor notifies the collection agency of its available charged-off debts, and the collection agency will review the list to determine the ones it wants to purchase. Sometimes, creditors will sell debts in large groups.

Typically, a collection agency pays far less to acquire a debt than its actual value. In most instances, the agency may pay as little as $0.04 for every $1 in consumer debt. In other words, debt buyers only pay 4% of the original debt value on average, then they collect on the full amount. The low price allows collection agencies to turn a profit, as not all consumers will respond to collection notices, and some debts may be uncollectible.

Let’s consider an example.

Example: Bold Credit charged off 1,000 customer accounts this quarter for clients who stopped paying their bills for six months or longer. The total value of the outstanding consumer debt is $3,000,000, and all of these customers live in California and Nevada. SoCal Collections, which is licensed as a debt collector in both states and specializes in credit card obligations, wants to purchase the charged-off debts. It offers Bold Credit $120,000, or 4% of the outstanding value of the accounts, in a purchase deal. Bold Credit doesn’t receive any other offers, so it agrees to sell the accounts to SoCal Collections.


How collection agencies earn a return on their purchases

Once a collection agency purchases charged-off debt from a creditor, it will assess each obligation and start the collection process. Following an initial communication, which can happen via a phone call, email, or letter, the collection agency must provide a written statement of the amount you owe and the original creditor’s name.

The Fair Debt Collection Practices Act (FDCPA) gives you 30 days to dispute the validity of a debt. If you don’t file a dispute during that time, the collection agency can assume the debt is valid and report your account to the credit bureaus.

It’s common to receive multiple phone calls and letters from the collection agency that purchased your old obligation. If you don’t respond to these communications, the collection agency may decide to sue you.

A successful debt lawsuit provides the collection agency with a judgment against you, which it can use to garnish your wages or seize your bank account. Wage garnishment can significantly reduce your income. Some states allow judgment holders to garnish up to 25% of a worker’s weekly wages.

It’s in your best interests to avoid a judgment, especially if you’re already on a strict budget. Wage garnishment can make it much more challenging to afford other things you need, like a place to live and food to eat.

Collection agencies buy debts cheaply

While collection agencies usually don’t pay much to purchase your charged-off debt, they’ll still try to collect the entire amount due from you. You should attempt to make a payment arrangement with them or repay the balance if you have the money available. Otherwise, the collection agency may sue you — something you absolutely don’t want.

Is a collection agency suing you for debt? Don’t let them win — settle your debt with SoloSettle’s help.

Settle your debt to avoid going to court

If you’ve been sued for debt, you may want to settle the debt before going to court.

When you contact the entity suing you, let them know you are willing to work out a payment arrangement to avoid going to court. Frequently, debt collectors prefer to work out their claims with debtors instead of proceeding with a court case.

Going to court requires collectors to take time away from their regular duties to meet with a judge. The outcome of a court case isn’t guaranteed; they may show up only to find that a judge dismisses their case or issues a finding on your behalf.

On top of that, many debt collectors are debt buyers who purchased your debt for as little as 4% of its original amount. This means that, if you offer to pay off even just 50% of the debt amount, the collector will still make a huge profit. Therefore, debt collectors are usually willing to settle for less.

Before offering to settle the debt, make sure you have an amount in mind that you can afford to pay. If the creditor accepts your offer, you’ll likely need to pay the amount on the spot.

Suppose that you don’t have the financial means to make a lump-sum payment. Try to negotiate a payment plan. Sometimes creditors and debt collectors will agree to a payment plan rather than going to court for a judgment, especially if they believe collecting money from you all at once will be difficult.

SoloSettle makes the debt settlement process simple. Our software helps you send and receive settlement offers until you reach an agreement with your creditor or debt collector. Check out the following video to learn more:

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

>>Read the MSN story about how SoloSuit can help you settle your debt

How to answer a summons for debt collection in your state

Here's a list of guides for other states.

All 50 states.



Guides on how to beat every debt collector

Being sued by a different debt collector? Were making guides on how to beat each one.


We have answers

Join our community of over 40,000 people.


You can ask your questions on the SoloSuit forum and the community will help you out. Whether you need help now are are just look for support, we're here for you.


Get Started

Win against credit card companies

Is your credit card company suing you? Learn how you can beat each one.

Going to Court for Credit Card Debt — Key Tips

How to Negotiate Credit Card Debts

How to Settle a Credit Card Debt Lawsuit — Ultimate Guide

Get answers to these FAQs

Need more info on statutes of limitations? Read our 50-state guide.

Why do debt collectors block their phone numbers?

How long do debt collectors take to respond to debt validation letters?

What are the biggest debt collector companies in the US?

Is Zombie Debt Still a Problem in 2019?

SoloSuit FAQ

If a car is repossessed, do I still owe the debt?

Is Portfolio Recovery Associates Legit?

Is There a Judgment Against Me Without my Knowledge?

Should I File Bankruptcy Before or After a Judgment?

What is a default judgment?— What do I do?

Summoned to Court for Medical Bills — What Do I Do?

What Happens If Someone Sues You and You Have No Money?

What Happens If You Never Answer Debt Collectors?

What Happens When a Debt Is Sold to a Collection Agency

What is a Stipulated Judgment?

What is the Deadline for a Defendants Answer to Avoid a Default Judgment?

Can a Judgement Creditor Take my Car?

Can I Settle a Debt After Being Served?

Can I Stop Wage Garnishment?

Can You Appeal a Default Judgement?

Do I Need a Debt Collection Defense Attorney?

Do I Need a Payday Loans Lawyer?

Do student loans go away after 7 years? — Student Loan Debt Guide

Am I Responsible for My Spouses Medical Debt?

Should I Marry Someone With Debt?

Can a Debt Collector Leave a Voicemail?

How Does Debt Assignment Work?

What Happens If a Defendant Does Not Pay a Judgment?

How Does Debt Assignment Work?

Can You Serve Someone with a Collections Lawsuit at Their Work?

What Is a Warrant in Debt?

How Many Times Can a Judgment be Renewed in Oklahoma?

Can an Eviction Be Reversed?

Does Debt Consolidation Have Risks?

What Happens If You Avoid Getting Served Court Papers?

Does Student Debt Die With You?

Can Debt Collectors Call You at Work in Texas?

How Much Do You Have to Be in Debt to File for Chapter 7?

What Is the Statute of Limitations on Debt in Washington?

How Long Does a Judgment Last?

Can Private Disability Payments Be Garnished?

Can Debt Collectors Call From Local Numbers?

Does the Fair Credit Reporting Act Work in Florida?

The Truth: Should You Never Pay a Debt Collection Agency?

Should You Communicate with a Debt Collector in Writing or by Telephone?

Do I Need a Debt Negotiator?

What Happens After a Motion for Default Is Filed?

Can a Process Server Leave a Summons Taped to My Door?

Learn More With These Additional Resources:

Need help managing your finances? Check out these resources.

How to Make a Debt Validation Letter - The Ultimate Guide

How to Make a Motion to Compel Arbitration Without an Attorney

How to Stop Wage Garnishment — Everything You Need to Know

How to File an FDCPA Complaint Against Your Debt Collector (Ultimate Guide)

Defending Yourself in Court Against a Debt Collector

Tips on you can to file an FDCPA lawsuit against a debt collection agency

Advice on how to answer a summons for debt collection.

Effective strategies for how to get back on track after a debt lawsuit

New Hampshire Statute of Limitations on Debt

Sample Cease and Desist Letter Against Debt Collectors

The Ultimate Guide to Responding to a Debt Collection Lawsuit in Utah

West Virginia Statute of Limitations on Debt

What debt collectors cannot do — FDCPA explained

Defending Yourself in Court Against Debt Collector

How to Liquidate Debt

Arkansas Statute of Limitations on Debt

Youre Drowning in Debt — Heres How to Swim

Help! Im Being Sued by My Debt Collector

How to Make a Motion to Vacate Judgment

How to Answer Summons for Debt Collection in Vermont

North Dakota Statute of Limitations on Debt

ClearPoint Debt Management Review

Indiana Statute of Limitations on Debt

Oregon Eviction Laws - What They Say

CuraDebt Debt Settlement Review

How to Write a Re-Aging Debt Letter

How to Appear in Court by Phone

How to Use the Doctrine of Unclean Hands

Debt Consolidation in Eugene, Oregon

Summoned to Court for Medical Bills? What to Do Next

How to Make a Debt Settlement Agreement

Received a 3-Day Eviction Notice? Heres What to Do

How to Answer a Lawsuit for Debt Collection

Tips for Leaving the Country With Unpaid Credit Card Debt

Kansas Statute of Limitations on Debt Collection

How to File in Small Claims Court in Iowa

How to File a Civil Answer in Kings County Supreme Court

Roseland Associates Debt Consolidation Review

How to Stop a Garnishment

Debt Eraser Review

Do Debt Collectors Ever Give Up?

Can They Garnish Your Wages for Credit Card Debt?

How Often Do Credit Card Companies Sue for Non-Payment?

How Long Does a Judgement Last?

​​How Long Before a Creditor Can Garnish Wages?

How to Beat a Bill Collector in Court

Not sued yet?

Use our Debt Validation Letter.


Out Debt Validation Letter is the best way to respond to a collection letter. Many debt collectors will simply give up after receiving it.


Let's Do It

It only takes 15 minutes.

And 50% of our customers' cases have been dismissed in the past.


"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather



Get Started