Collins, 25, only signed a new four-year deal this summer but has fallen down the pecking order since the arrivals of Christophe Berra and Ronald Zubar at Molineux, meaning his first-team opportunities will be limited.
McCarthy told the Express and Star: "He's been brilliant for us but he needs to go and play football. He has been excellent but hasn't been in the team and you just need to change things from time to time.
"Neill will move on, just like Jason Shackell and Darren Ward. I want to sell him - Neill doesn't want to be going out on loan.
"There's nothing in the offing for him to my knowledge but he'd get into any Championship side. Half of them would make him their captain if he went there.
"I said the same about Rob Edwards and I wasn't wrong - he went to Blackpool and became their captain. Neill will do the same."