Purchasing fresh paper is expensive, especially since it is rarely sold in small increments. It's also difficult to get hold of without connections, introductions, and inside access to the original issuer. A much more profitable way of buying bad debt is to invest in older 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.
Instead, consider investing in debt that has been through one or multiple agencies. Typically, banks will send their delinquent accounts to preferred collection agencies prior to selling the fresh paper charge-offs. These agencies must adhere to strict regulations set forth by the bank to help maintain a good image during collections.
Typically, for the first three to six months, these agencies are required to collect at 75% of the original balance, with a reduction to about 60% for the next six months. Anything less must be approved by the issuer. Because the collectors are working for a low fee and concentrate on stepping lightly over the larger accounts, many of the smaller debts are worked very softly.
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.
The fewer hands that have touched a file purchased from a broker, the better. Buying bad debt that has gone through fewer hands gives you a better chance of collection success. And with every transaction with a broker, negotiation is a necessity, as well as becoming more familiar with the broker from whom you are buying bad debt. You should know the fees charged by each broker and know that each broker is probably familiar with others in the industry.
Because buying bad debt is like any other industry, it is ruled by the laws of supply and demand, meaning the number of purchasers changes the bottom line cost. Knowing the competition and the condition of the market can help you determine what sort of profit margin you can expect.
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.
Instead, consider investing in debt that has been through one or multiple agencies. Typically, banks will send their delinquent accounts to preferred collection agencies prior to selling the fresh paper charge-offs. These agencies must adhere to strict regulations set forth by the bank to help maintain a good image during collections.
Typically, for the first three to six months, these agencies are required to collect at 75% of the original balance, with a reduction to about 60% for the next six months. Anything less must be approved by the issuer. Because the collectors are working for a low fee and concentrate on stepping lightly over the larger accounts, many of the smaller debts are worked very softly.
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.
The fewer hands that have touched a file purchased from a broker, the better. Buying bad debt that has gone through fewer hands gives you a better chance of collection success. And with every transaction with a broker, negotiation is a necessity, as well as becoming more familiar with the broker from whom you are buying bad debt. You should know the fees charged by each broker and know that each broker is probably familiar with others in the industry.
Because buying bad debt is like any other industry, it is ruled by the laws of supply and demand, meaning the number of purchasers changes the bottom line cost. Knowing the competition and the condition of the market can help you determine what sort of profit margin you can expect.
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Next, explore more important information and resources about buying bad debt, as well as collection agency solutions.
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