How Your Forgotten Debts Makes Profits For Collection Agencies


How Your Forgotten Debts Makes Profits For Collection Agencies

The majority of American citizens are familiar with the zealous tactics that debt collection agencies can use. Normally, when you least expect it, the phone rings and you get hassled with threats and intimidation from a collector for something that you forgot about and happened many years previously.

Collection companies who are unheard of by the debtors and suddenly contacting people demanding immediate payments of huge debts.

How does this happen, and why? Why are collections agencies so pervasive and so aggressive?

Basically, in the last decade or so, consumer’s debts that they have forgotten about have become increasinglty profitable for certain debt collection agencies. Normally, it will cost card companies more to try and recover the debts, even if the debtor pays in full. Previously, it woulod cost too much to pursue these old debts and many were written off.

In the current time, the set up has altered. How? With recent advancements in technology, debt collection agencies are able to target the debtors by a likely they are able to repay the debts. Financial statistics about all Americans are collected into vast databases. Debt collectors can pull up people’s credit scores and other crucial lifestyle information with the push of button, and target people accordingly.

The more aggressive a company is, the more money it now stands to make collecting on debts. Some of these agencies spring up like mushrooms after a rain, buying maxed-out, unpaid credit accounts, such as credit cards, from companies like Visa or American Express. For every single US dollar of debt will cost the collection agencies just pennies for these accounts.

Then, they access thier database of debtors and focus on the ones that they think are most likely will repay all that they owe. On some occasions the collection agency’s costs will only be a quarter dollar for every $100 debt. Using this low rate, if the collection agency can force the debtor to repay even $1, they can cover their costs. If the debtor only pays $4 for a total liability of $100 then the collection company will make a profit of around 400%. Persuading people to pay is not very difficult, since these collection agencies now have the power to destroy people’s credit rating. Debtors can be annoyed by telephone calls at any time of the night or day, can be made to worry unneccessarily and threatened until they finally repay the debt.

The profitability of debt collection agencies is that experts predict that in 2008 alone they will buy anything between $100 billion and upwards of old accounts. At the turn of the new millenium, third party companies only bought $55 Billion in debts from the initial lenders.

That’s a huge rate of growth, and it’s only going to increase–despite the fact that old debts are now being sold to collection for slightly more than before, in the face of all the collection agencies scrambling to make money from the old debts. The majority of collection agencies are short term companies, here today and gone tomorrow.

One of America’s biggest buyers of old bad debt is Asset Acceptance Capital, which made a whopping $51.3 million in profits in 2005. Portfolio Recovery Associates are another company who made $36.The revenue of the company has increased by five times since the turn of the millenium, and in total $8million that year. The upshot? Make sure to pay off all your debts. At the same time, be prepared to deal with aggressive collection agencies that act in borderline-legal ways to get you to pay off debts that may not even be valid.

Gary Milton has been writing on debt topics for several years, you can read more of his work at tfgi.com, a site for debt help. You can also read more of his debt articles including ‘Debt Consolidation May Be The Wrong Move‘

How Your Forgotten Debts Makes Profits For Collection Agencies / Author: Gary Milton