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Fresh paper is difficult to come by without the proper connections, introductions, and other inside access to the issuer. It tends to be expensive, and it is not sold in small increments. Buying bad debt that is older can be a much more lucrative business decision.
Consider the weak economy and the repercussions of buying bad debt. In order to recover more than the $0.05 on the dollar earned from a charge-off, banks are currently willing to settle with delinquent clients for as little as $0.15 on the dollar. If a customer is unable to make this sort of a settlement, it is likely that buying bad debt directly from these banks won't amount to the ability to immediately recover the funds.
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.
For the first three to six months, the account must be collected for 75% of the balance, and somewhere around 60% after than, unless the collection agent receives proper approval from the issuer. At this point, the accounts have been worked softly to avoid harassing the customer. Also, these collectors are working for low fees and will concentrate on the more lucrative accounts first.
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.
Consider the weak economy and the repercussions of buying bad debt. In order to recover more than the $0.05 on the dollar earned from a charge-off, banks are currently willing to settle with delinquent clients for as little as $0.15 on the dollar. If a customer is unable to make this sort of a settlement, it is likely that buying bad debt directly from these banks won't amount to the ability to immediately recover the funds.
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.
For the first three to six months, the account must be collected for 75% of the balance, and somewhere around 60% after than, unless the collection agent receives proper approval from the issuer. At this point, the accounts have been worked softly to avoid harassing the customer. Also, these collectors are working for low fees and will concentrate on the more lucrative accounts first.
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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