Debt Buyers: Find Out About 3 Growth Markets With Low Competition And Substantial Profit Potential

Debt buyers, typically private or public companies

, hedge fund investors, private equity companies, or even collection agencies, often buy portfolios of charged off, past due debt from banks, credit unions, telecom, hospitals, or other credit granters.

Debt buying activity has grown significantly in the past several years. This has caused increased competition, along with the rise in portfolio pricing. 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 means smaller profits for bad debt buyers.

These bought debt portfolios, which account for millions of dollars in past due, charged-off accounts, are, more often than not, large balance accounts. They're usually purchased at some discount.

The standard wisdom is that larger balance accounts can mean greater profit potential for the debt buyer. 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.

Other options are available, however. Because they're less competitive, they also offer greater profit margins. For example,

-Bank Demand Deposit Accounts, which are overdrawn checking/ATM accounts (DDA)

-Stafford Student Loans (govt loans for college or vocation school), and

-Payday Cash Advances

Listed below are some advantages:

Deeply Discounted Pricing

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 who hire third party collection agencies to recover on these accounts can save on their internal expenses and reduce overhead significantly.

Key is finding collection agencies who specialize in small balance DDA accounts. Many collection agencies focus most of their recovery efforts on larger balance accounts because of the larger potential profit.

Because of this, banks and other credit granters typically lower their prices for small balance debts to make them more appealing to debt buyers.

For collection agencies that specialize in collecting small balance DDA accounts, recovery rates average in the double digits. This means great opportunities for debt buyers. Investment returns of 50% or greater are not uncommon.

Debtors Commonly Pay Off Smaller Balance Accounts Earliest

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.

This means both greater recovery success for collection agencies effective in collecting demand deposit accounts, as well as even greater profits for bad debt buyers.

Lower Competition

Currently, there appears to be little competition for debt buyers when it comes to small balance DDA accounts, payday loans, and small balance student loans. Since the majority of the debt buying focus is on large balance accounts, it is a great time to look into this market.

Because of the current bad economy, with prolonged high jobless rate, and expanding delinquent debt, banks and other companies are seeing growing levels of delinquencies, defaults and charge-offs of smaller 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.

by: David P. Montana

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