Debt buyers, which can include private equity firms, hedge fund investors, collection agencies, other public or private companies, or other individuals, usually purchase portfolios of unpaid and charged off debt from credit granters, such as banks, credit card issuers, telecom companies, etc.
Debt buying has increased greatly in the last few years, causing greater competiton and portfolio prices to increase. Prices are expected to continue increasing, at least for another two years or so, partly due to the decline in credit card charge offs, as well as a drop since 2008 in credit card originations.
This translates into smaller profit margins for bad debt buyers.
These acquired debt portfolios, representing millions of dollars in charged-off accounts, are typically large balance accounts. They're usually purchased at some discount.
Many debt buyers favor larger balance accounts because of the greater profit potential. Thinking similarly, most collection agencies also focus more of their collection activities on larger balance accounts. In similar fashion, the majority of collection agencies tend to prefer larger balance accounts, and they focus the lionshare of their collection efforts on these.
There are, however, some other options to take a look at. These can offer larger profit potential. They are also less competitive. For instance,
-Bank Demand Deposit Accounts, that are overdrawn checking/ATM accounts (DDA)
-Stafford Student Loans (federal loans for college or vocation school), and
-Payday Loans
Some advantages include:
Deeply Discounted Prices
Banks, credit unions and other institutions mostly devote most of their in house debt recovery focus on larger balance accounts, due to the greater risk involved if these should default. Because of the limits of in house debt collection staff, banks/credit unions don't dedicate too much effort on small balance accounts. Most of the time, these can be acquired at great discounts.
Debt buyers that outsource these accounts to outside collection agencies can reduce their internal expenses and overhead tremendously.
The important point, though, is locating collection agencies whose speciality is small balance DDA accounts. Most collection agencies dedicate most of their attention on larger balance accounts, due to the potential for greater profits.
For this reason, banks and other institutions usually price their small balance debts lower to make them more attractive to debt buyers.
Collection agencies specializing in smaller balance demand deposit accounts, can boast of collection success rates in the double digits, which is a great opportunity for debt buyers. Its not uncommon to see investment returns equaling 50% or better!
Debtors Generally Pay Off Smaller Balance Debts First
Debt buyers should seriously consider smaller balance accounts. Typically, debtors pay off their smaller balance accounts first. This gives them a sense of making headway. This can seem a more manageable approach than attempting large balance credit card, or other accounts, which can feel overwhelming. After paying off small accounts, they then feel empowered to take on the larger accounts.
Collection agencies with an expertise in recovering on smaller balance demand deposit accounts will produce better collection success. Bad debt buyers will also see greater profits!
Minimal Competition
At present, there appears to be little competition for debt buyers with respect to small balance demand deposit accounts, cash advance loans, as well as small balance student loans. Because most of the debt buying focus is on larger balance accounts, this is a excellent time to think about this market.
As a consequence of present bad economic climate, together with prolonged high unemployment, and rising delinquent debt, banks and other companies are seeing growing amounts of delinquencies, defaults and charge-offs of small balance accounts.
Competition in this market is sure to increase, as many more investors and debt buyers become knowledgeable of the profit potential in this arena. This growth in competition will also mean increased portfolio prices, which will reduce the profit potential.
Author Resource:
Would you like to discover more valuable knowledge and solutions about how to maximize profit gains for debt buyers ?
David P. Montana's abilities, expertise and assistance has been highly sought after for three decades in the area of debt collection solutions.
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