Investing in older debt is a much better business initiative than trying to purchase fresh paper charge-offs. These newer accounts are not only more expensive but also harder to grab unless you have an inside track to the original issuer of debt. It is also rarely sold in small increments.
In making the decision, those buying bad debt should consider the weak economy. Banks are willing to make settlements with clients to avoid charge-offs, at times offering payment plans on high balances and accepting as little as $0.15 on the dollar (which is more than the $0.05 on a charge-off). As a debt collector buying bad debt, consider that a customer who cannot make these numbers are not going to be able to pay the collection immediately.
Once that debt has been through one or multiple agencies, there is a much greater chance of recovery. Banks have strict regulations for collection during the initial months of delinquency, and these must be adhered to by the preferred collection agencies. This is an attempt to preserve their reputation while collecting their debt.
Still, with these policies, the collectors must work to obtain 75% of the original debt for the first three to six months of efforts, and 60% for the following six months. Approval is needed for any lower negotiation. Keep in mind these collectors are working for very low fees and will concentrate on larger accounts to gain the most from their work. Smaller accounts are barely worked.
Buying bad debt with lower balances is a great way to profit. In the tough, weak market today, studies show that balances between $1000-1500 are more successfully collected than those of $5000 or more.
Another profitable market is payday loans, which are often overlooked by these early collectors. These collect well in the $700-800 range. Many of the low-balance accounts are available from non-prime lenders, and while you can purchase these accounts from brokers, there is usually a premium charged for these, since they have to be extracted from larger portfolios.
When buying bad debt from a broker, the fewer hands on a file, the better chance you will have of collection success. Working with brokers means negotiation and getting to know that particular broker, since not all brokerage firms handle things the same way. Be aware of fees charged, and realize that, in such a tight industry, brokers are likely to all know each other.
The price for buying bad debt is like everything else, based on supply and demand. The number of willing purchasers changes the cost. Knowing the market - and the competition or number of debt buyers out there - can help you assess the likelihood of profiting from buying bad debt.
In making the decision, those buying bad debt should consider the weak economy. Banks are willing to make settlements with clients to avoid charge-offs, at times offering payment plans on high balances and accepting as little as $0.15 on the dollar (which is more than the $0.05 on a charge-off). As a debt collector buying bad debt, consider that a customer who cannot make these numbers are not going to be able to pay the collection immediately.
Once that debt has been through one or multiple agencies, there is a much greater chance of recovery. Banks have strict regulations for collection during the initial months of delinquency, and these must be adhered to by the preferred collection agencies. This is an attempt to preserve their reputation while collecting their debt.
Still, with these policies, the collectors must work to obtain 75% of the original debt for the first three to six months of efforts, and 60% for the following six months. Approval is needed for any lower negotiation. Keep in mind these collectors are working for very low fees and will concentrate on larger accounts to gain the most from their work. Smaller accounts are barely worked.
Buying bad debt with lower balances is a great way to profit. In the tough, weak market today, studies show that balances between $1000-1500 are more successfully collected than those of $5000 or more.
Another profitable market is payday loans, which are often overlooked by these early collectors. These collect well in the $700-800 range. Many of the low-balance accounts are available from non-prime lenders, and while you can purchase these accounts from brokers, there is usually a premium charged for these, since they have to be extracted from larger portfolios.
When buying bad debt from a broker, the fewer hands on a file, the better chance you will have of collection success. Working with brokers means negotiation and getting to know that particular broker, since not all brokerage firms handle things the same way. Be aware of fees charged, and realize that, in such a tight industry, brokers are likely to all know each other.
The price for buying bad debt is like everything else, based on supply and demand. The number of willing purchasers changes the cost. Knowing the market - and the competition or number of debt buyers out there - can help you assess the likelihood of profiting from buying bad debt.
About the Author:
Next, explore more important information and resources on buying bad debt, as well as collection agency solutions.
