Delinquency purchases are growing at a fast pace in this country. One reason for this is the increase in unemployment, another is the increase in consumer default rates due to the bad economy. Typically, debt portfolios can be purchased for cents on the dollar, which can make them an attractive investment for those looking for high potential returns.
With prices at cents on the dollar, the upside potential is high. The price is based on several things: the date of the debt and the number of times it has been placed with a collection agency. Accounts made at more than one collection agency benefit from even greater discounts.
Debt buyers can be of any size, from large institutions and investment firms to small individual investors looking to earn extra money with a small portfolio. Buyers will buy these past due debts from a creditor for a fraction of the face value of the debt. The new owner can then bill his office, owe a debt to a lawyer or collection agency, sell unwanted wallet accounts or any combination of the above. The debt can be purchased on a variety of different product types, including a credit card (the most common), a defective car, a payday loan, medical bills or utilities. Some financial institutions also sell their written checks and ATM / debit accounts, called demand deposits or DDA accounts.
There are a few ideas to consider when making your first debt purchase:
1) Many people who are just starting out will find a small portfolio of accounts in their own state, put them in an established collection company or lawyer, and then follow up from time to time to track the progress of the debt. This is probably the most practical approach, but the easiest for a novice debt buyer.
2) People with more experience in the industry may prefer to receive the invoices in person, which gives them more control over the resolution process. I can’t emphasize enough that this is for the experienced collector, a new debt owner may be in trouble if they don’t fully understand your state’s collection laws.
The increasing availability of these accounts for purchase was the catalyst that initiated the purchase of debt as an industry. Having moved millions of accounts and billions of dollars between buyers and sellers in recent years, I can say that the potential for return definitely exists if you approach it correctly. One point I want to make clear – a new buyer should not approach this business trying to make the largest possible investment in advance. I am not advocating that people buy as much debt as they can and then cover it with a prisoner-free approach. Buyers who engage in this type of practice give the industry a bad name and can quickly make enemies of some of the industry’s veterans, people you need to get advice on best practices. Collection does not have to be a scary business, I have always had the best collection results when working with a debtor to understand his situation and find a solution.
When managed well, it can be a fun and profitable business. If what you read here seems interesting and you want more information, feel free to send me your questions and I can help you find the right portfolio to get started.