How to Make Money Buying Debt

There are many ways to make money and buying and selling debt portfolios is one of them. When you buy debt, you get the right to collect a debt from a borrower. However, you still have the option to buy debt and forgive it. But if you are in the business of buying debt, then you would need to collect these debts. If you choose to collect a debt from borrowers, there is a legal procedure and you must not harass debtors. We are going to focus on 

What Does it Mean to Buy Debt?

Buying debt means purchasing debt from a creditor or a lender at discount. The implication is that the creditor transfers debt ownership to the debt buyer. As such, the debt buyer has the right to collect a debt from a debtor or borrower.

Is It Legal to Buy Debt?

Can you buy debt? Yes. It is legal to buy someone’s else debt if there is no contract signed that the debt cannot be sold to another party. However, you must use the legal procedure to collect a debt from a borrower. You must not harass debtor. For instance, you shouldn’t call the debtor before 8 am or after 9 pm. You must also not abuse or harass the debtor in the process of collecting a debt.

How to Buy Debt Portfolios

To buy a debt, you first need to write a debt purchase agreement. This is an agreement between the collection agency or debt collection law firm and the creditor.

The next thing is to research the history and quality of the specific portfolio. You need to choose a specific industry you are good at. For instance, you can decide to be collecting delinquent business loans if you are good at business financing.

Start small and grow progressively. Start by buying low-volume portfolios as low as $5,000. You can then use your profits to buy large-volume portfolios. Besides, this helps you experiment first without taking huge risks.

Work with groups such as Receivables Management Association to network with others in the business. Through such connections, you can learn new strategies and connect with business owners. Besides, you can get more clients through networking.

Follow the set rules and regulations. The debt collection industry is governed by the Federal Fair Dent Collections Practices Act and state laws. These laws protect consumers from harassment. Make sure to abide by the set rules.

Where Can I Buy Debt Portfolios?

The following are some marketplaces where you can buy debt portfolios:

1. Debt Expert

Debt Expert is a great place where you can buy or sell debt portfolio. You can publish your debt portfolio and easily set up an auction. They have an app you can use to track debt buyers that viewed your portfolio in real-time or those who requested additional information.

They do have a wide range of debt portfolios in the US. They specialize in selling debt to collection agencies, real estate buyers, medical debt buyers, hedge funds, and institutional buyers. They buy and sell a wide variety of debts like payday portfolios, installment portfolios and credit card portfolios, bankruptcies, and student loan portfolios.

2. EverChain

EverChain is another place where you can sell debt portfolios. If you are a debt buyer, they will notify you of new portfolio sales.

To become a debt buyer, you just need to submit an application if you meet the requirements. You must be licensed in at least 25 states, and have at least $500,000 open to buy annually. You can then start receiving alerts about available portfolios. You can analyze and review portfolios using a data partner network. You can then go ahead and close the sale.

3. DebtCatcher

DebtCatcher is also a place to buy and sell debt. To become a debt seller, you need to create a seller’s account. You can then list your ad with maximum details. You will then wait for validation which will take at least 12 hours. Once your ad is published and the public can view it. You can then start answering buyers’ requests.

To become a debt buyer, you can browse through the ads, register for an account, log in, and then choose an account to fully access ads and sellers’ information. You can then contact the seller and start direct negotiations with sellers, make an offer and then close the deal.

Also read: Where can I buy debt portfolios?

4. Accounts Recovery

Accounts Recovery is a company involved in buying and selling debts. They deal with a wide variety of loans like payday debts, credit card debts, overdrafts, DDA, and installment debts. To buy or sell and loan, you just need to create an account, log in, and get started.

5. Omega Invest

Omega Invest is also an Estonian company that is involved in buying and selling of debt portfolios. The company is operational in Estonia and Lithuania. The company partners with banks and credit institutions to buy and sell debts. They deal with personal loans and credit card loans.

How Do Debt Buyers Make Money?

Debt buyers make money by buying debt from creditors at a discount and then try to collect the debt from debtors. They acquire debts at low prices and then collect the amount owed to the creditor by a debtor. For example, a debt buyer can pay $1,000, or 50 cents on the dollar, for a debt with a face value of $3,000. If the debt buyer collects the full value of debt from the debtor, he will have made a profit of $2,000.

Can You Buy Your Own Debt?

Unfortunately, it is not possible to buy your own debt for pennies. It is because it is not possible to sell an uncollected debt to someone else. But companies can buy debts at discounted prices because it is possible for them to buy thousands of portfolios all at once.

Also read: Do millionaires pay off debt or invest?

Is Debt Buying Profitable Investment?

Debt buying can be profitable if you know how to go about the whole process. Debt buyers make money by buying debts at discounted prices and then collecting these debts from debtors. Even if a debt buyer collects a fraction of the debt from a borrower, he can still make significant profits depending on how much the debt buyer had purchased it.

Summary of How to Make Money Selling Debt

Creditors opt to sell their debt portfolios to save time used on following up debts and avoid further credit losses. There are many companies like debt collection agencies that buy different kinds of loans like payday loans and credit card loans. These companies buy debt portfolios at a discounted price and then proceed to collect a debt from debtors. Even if they collect a portion of the initial debt, they can still make a profit from that debt.

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This article was updated on December 8, 2022

Vincent Nyoike

Vincent Nyoike is an experienced business consultant and financial analyst. He is a CPA and is currently pursuing a Master of Science in Finance and Accounting at JKUAT. He holds a B.Sc. in Applied Statistics from the University of Eldoret