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Old credit card debt spirals due to compound interest

In 2016, Nikau was contacted by a debt collection company that said he owed $3000. Over the next five years Nikau disputed the debt because he did not know where it came from. The debt collector explained they had bought the debt from a lender that Nikau had a credit card with.

The debt collector showed Nikau the original credit card application he had made for an instore purchase of $300, 11 years earlier. Nikau did not remember making the purchase but acknowledged that, at some point, he had a credit card with the lender.

However, Nikau could not understand how the debt had escalated from $300 to $3000. Nikau said there may have been larger purchases on the credit card a few years earlier but, in any event, he believed these had been paid off and said he had an email from the lender to that effect. The debt collector said there were account statements showing that minimum payments were not met, the account fell into arrears, and compound interest escalated the loan balance in the years prior to it being sold to the debt collector.  

Communication between Nikau and the debt collector broke down and by the time Nikau contacted FSCL, he owed $6000.


The debt collector could not provide an account history for the first nine years after the credit card was taken out, however, Nikau wanted the debt collector to show what purchases had been made to bring the account balance to $3000 in 2016. Nikau also claimed he had not received any account statements or communication from the lender prior to the debt being sold and, if he had known about an unpaid credit card, he would have paid it before the debt escalated. Additionally, Nikau believed an email from the lender six years ago proved his credit card debt had been settled.

Nikau also felt too much time had passed for the debt collector to pursue him for the debt. Nikau said the debt collector had been unfairly harassing him for five years, causing him a lot of stress, and detriment to his health.

The debt collector said the statements they received from the lender showed the credit card had not been repaid, and the account was sold to them five years ago with a balance owing of $3000. The debt collector also said that statements were sent to Nikau’s address in the years prior to the debt being sold, so they could assume the lender had told him about the escalating debt. The debt had grown to $6000 because Nikau had not paid the debt collector any money, and interest continued to compound.

The debt collector offered to reduce the balance owing to $4000 and freeze any further interest, but this did not resolve Nikau’s complaint. He felt he should not have to pay anything.  


We reviewed the available account history from before and after the account was sold to the debt collector. We told Nikau that the offer to reduce the balance from $6000 to $4000 was reasonable because:

  • We did not have the account history for the first 9 years Nikau had the credit card, but this was not unexpected – records that old are not usually kept. Despite this, we could see that the balance from where the account history began seven years ago was consistent with two possible scenarios:
  • either no payments were made towards the initial purchase and an interest rate of 29.25% had increased the balance, or
  • payments were made, but the larger purchases Nikau mentioned may have been charged to the credit card which had increased the balance.
  • There was a 2015 email from the lender to Nikau saying that his last payment cleared and there was nothing owing on his account. However, it appeared this related to another account Nikau had with the lender.
  • The evidence was that Nikau was aware of the escalating debt. Over the course of seven years (before the debt was sold), the lender had communicated with Nikau about the overdue balance, and Nikau had made sporadic payments and payment arrangements. The account statements had been sent to Nikau’s correct address. 

We explained to Nikau that, on the evidence available, it appeared his debt was accurate. We said the debt collector had made a reasonable settlement offer in proposing to reduce the debt to $4000.


We thought it might help if Nikau and the debt collector could speak together to see if a resolution could be reached, and we facilitated a conference call between the parties. The debt collector wanted to get the complaint resolved, and Nikau was concerned about how he would pay $4000.

In the interests of resolving the complaint, the debt collector asked Nikau to put forward what he felt would be a reasonable settlement amount. In the end, Nikau and the debt collector agreed to settle the complaint by reducing the debt to $2000, and freezing the interest, to be repaid in instalments over the next two months.

Insights for consumers

If you are contacted by a lender or debt collector claiming you owe them money, it is best not to ignore that communication. Due to compound interest, debts can escalate quickly, so you may have to pay more the longer a debt is avoided. Even if you dispute the debt, talk to the lender/debt collector, and tell them why you do not think you owe the money. If you cannot reach an agreement with the lender/debt collector, contact their dispute resolution scheme for help.