You may have heard people talking about how they made millions from their kitchen table buying debt and collecting on it, allow me to dispel some of the myths and give you the facts on this opportunity. There is good money to be made in the debt purchasing and collection business if done properly, but it is important to get into a good portfolio for the right price and manage it well if you are going to maximize your income.
First and foremost, this is a game of percentages. When I consult with new debt buyers, I usually start out by recommending that they purchase a few hundred accounts in their first portfolio. A collector needs to have an adequate number of accounts to get a decent percentage of them to pay. Here is an example to help illustrate:
Let's say a buyer purchases a debt portfolio for 4 cents on the dollar. The buyer should be able to liquidate 3-5 times that price over the life of the portfolio, which means that only 12-20% of that portfolio is truly collectable. This doesn't mean that in every 100 accounts there are 12-20 that will pay though. If a buyer only purchases 100 accounts or less, there could be the chance that they have no paying accounts, or they could have more than the average. The buyer that takes on fewer accounts in a debt purchase has a bigger chance at losing their investment than a buyer that can cushion that chance with hundreds of accounts.
Once you have a debt portfolio in possession, management is a key component of success. If you have no experience in collecting debt, my recommendation is to find a collection agency or law firm to place the accounts with. It is important to interview or perform some sort of due diligence on the prospective collection agencies, you want to make sure the agency or firm you place with has a good track record with your type of debt and they can give your portfolio the attention it needs to be successful.
Another element to consider when buying debt is whether you plan to re-sell the portfolio. Typically a collection effort will run it's course in about 6 months, after which you will either pull the accounts from the agency and place with another, or you may consider selling the portfolio. Using a listing service like BuyingDebt.Org can be helpful in getting your portfolio sold as well as presenting other debt purchasing opportunities. If you have more questions about buying debt or selling debt, there are educational resources, support services and live assistance available at BuyingDebt.Org.
