In order to turn a profit from buying bad debt, brokerage firms and other debt collection agencies must consider all the ramifications to reason out the most lucrative investment options. Often, older debt and charge offs lead to the greatest profit. Attempts to collect on fresh charge offs and debts are less successful for these purchasing agencies because the reasons behind the bad debt still follow the debtor.
For the most part, charge offs occur only when the debtor is truly unable to make payment to the issuing creditor. Illness, unemployment, and other extenuating circumstances lead to the debtor's inability to pay even a small portion of the debt owed. Even when the banks are willing to accept minimal payments as low as $0.15 on the dollar as a settlement, many debtors are unable to hold to the agreement.
If the issuing creditor, who is close to the fresh debt, cannot collect these funds, how can a debt collector expect to do so? The answer is simple - the debtor won't pay it.
Fresh charge offs are typically connected to debtors in dire straits considering bankruptcy as an option, which negates their obligation to pay entirely. For investors buying bad debt, waiting until the charge offs are over a year old removes a great deal of this possibility.
At this point, the original creditor has likely reduced or completely stopped pursuit of bad debt, conserving their resources. Instead, a purchasing firm has a greater opportunity to purchase bad debt portfolios for a smaller percentage of the total debt, with the banks and creditors pleased to simply remove the bad debt from their finances.
In addition, 12-18 months typically allows enough time for a debtor to resolve the issues that caused them financial trouble in the first place. In most cases, they will have recovered from any illness and found employment during this time, making it possible for them to make good on at least a portion of their debt owed. This means the firm buying bad debt will be able to recover a larger percentage of the debt they purchased for a greater profit margin.
In contrast, fresh charge offs are more difficult to turn into a profit. Banks are looking for a greater percentage in order to sell the bad debt portfolios, and debtors have fewer resources with which to repay their debt. Also, with the issuing creditor and possibly other agencies having been in pursuit of the debt for a greater amount of time makes the debtor more likely to want to end collection calls.
Logically speaking, it seems that newer, fresher debt would be easier to pursue and turn a larger profit. However, the issuing creditor may be able to achieve good results, but a brokerage firm buying bad debt will turn a greater profit by investing in older charge offs and debt portfolios.
For the most part, charge offs occur only when the debtor is truly unable to make payment to the issuing creditor. Illness, unemployment, and other extenuating circumstances lead to the debtor's inability to pay even a small portion of the debt owed. Even when the banks are willing to accept minimal payments as low as $0.15 on the dollar as a settlement, many debtors are unable to hold to the agreement.
If the issuing creditor, who is close to the fresh debt, cannot collect these funds, how can a debt collector expect to do so? The answer is simple - the debtor won't pay it.
Fresh charge offs are typically connected to debtors in dire straits considering bankruptcy as an option, which negates their obligation to pay entirely. For investors buying bad debt, waiting until the charge offs are over a year old removes a great deal of this possibility.
At this point, the original creditor has likely reduced or completely stopped pursuit of bad debt, conserving their resources. Instead, a purchasing firm has a greater opportunity to purchase bad debt portfolios for a smaller percentage of the total debt, with the banks and creditors pleased to simply remove the bad debt from their finances.
In addition, 12-18 months typically allows enough time for a debtor to resolve the issues that caused them financial trouble in the first place. In most cases, they will have recovered from any illness and found employment during this time, making it possible for them to make good on at least a portion of their debt owed. This means the firm buying bad debt will be able to recover a larger percentage of the debt they purchased for a greater profit margin.
In contrast, fresh charge offs are more difficult to turn into a profit. Banks are looking for a greater percentage in order to sell the bad debt portfolios, and debtors have fewer resources with which to repay their debt. Also, with the issuing creditor and possibly other agencies having been in pursuit of the debt for a greater amount of time makes the debtor more likely to want to end collection calls.
Logically speaking, it seems that newer, fresher debt would be easier to pursue and turn a larger profit. However, the issuing creditor may be able to achieve good results, but a brokerage firm buying bad debt will turn a greater profit by investing in older charge offs and debt portfolios.
About the Author:
Also, discover more important facts and resources about buying bad debt services, in addition to collection agencies solutions.
No comments:
Post a Comment