How to Buy Debt for Pennies on the Dollar

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Collection agencies, credit card companies and banks sell debt for pennies on the dollar if those companies believe that the chances for collection are remote. There are few regulations governing who can and can't start their own collection agency. It's essentially an ad hoc operation, as long as you have documentation proving that you have the right to collect on a loan. Successfully collecting even a single payment or reaching a settlement on a debt that you purchase for a small amount can turn a healthy profit.

Start your own collection agency. All you need to do is to incorporate your company and have access to basic office supplies and amenities. Most debt collection is done by mail and telephone. You should review the Federal Trade Commission's Fair Debt Collection Practices Act before starting into business so that you don't run afoul of the law and expose yourself to potential damages.

Contact other collection agencies, banks and companies that specialize in selling distressed debt. It's often sensible to specialize in a particular form of debt to increase your chances of successful collection and build up your personal network with businesses that can provide you with a steady supply of debt at a low cost. For example, collecting on delinquent auto loans is different from collecting on unsecured debts arising from credit cards and personal loans.

Make regular contact with delinquent debtors while remaining cognizant of the details of each debt case. If a debt has been delinquent for a number of years, it may be more realistic to offer a settlement that will allow you to turn a profit. If the debt is relatively recent and the individual has a regular income, it may be prudent to work out a more extensive payment plan. Many debts can be purchased for well below 3% of the total outstanding value of the loan, so if you can extract almost any payment, you can turn a profit.

Tips

  • The moral argument for debt payment can be the most effective. Often, debtors can be motivated by guilt. Emphasize the moral obligation for a debtor to "keep their word" or to "make the lender whole" to increase the effectiveness of your pitch.

References

Resources

About the Author

John Hewitt began freelancing in 2008, writing about subjects ranging from music to stock trading, the energy industry and business. His ghostwritten work has appeared all over the Web. He attended New York University, pursuing a bachelor's degree in history.

Photo Credits

  • telephone 2 image by Aleksandar Radovanovic from Fotolia.com