Debt buyers are buying back large portfolios of bad debts from credit card issuers. They take risks and do not always profit from the acquired debts.
A debt buyer: what’s this?
If you have never encountered debt buyers before, then you should know that these are companies that buy delinquent debts for pennies on the dollar. These companies are also known as “junk debt buyers” so you may come across the abbreviation “JDBs”.
So, if you cannot pay off your debt, the lender deducts money from your bank account, which means that it is listed as a loss for him. Of course, over time, creditors may try to collect debt from you through traditional means, such as an in-house collections department or a collection agency (which will try to collect the debt on their behalf). However, as a result, lenders may decide to sell your account in a portfolio of charged-off debt to another company. After they have done this, the company will pay them for your debt, which means that creditors will be able to recover at least part of their losses.
Surely you are also interested in the cost of buying debt. It often ranges from $ 0.04 to $ 0.14 for every dollar. Thus, if your debt is, for example, $ 1000, and the buyer of the debt buys it for ten cents a dollar, then he can pay $ 100 in order to buy back your debt. Of course, you still owe $ 10,000, but you will no longer pay this money to your creditor, but to the buyer of the debt. Thus, all the money they receive in excess of the $ 1000 they paid will be their income.
Of course, the buyer of the debt, like your lender before, will try to collect your debt. Sometimes they use third parties to collect the debt, and sometimes they resell your debt as part of another portfolio. Thus, your overdue debt can be sold several times.
How does debt buying work?
So after you know about debt buyers you need to understand how it works. Of course, debt buyers don’t buy debt separately, they buy back large portfolios of bad debts from credit card issuers. Thus, many credit card issuers in the United States use debt purchases to recover at least some of the outstanding debt. Most often, they receive about 5% of the total, but this at least slightly reduces their costs.
Of course, debt buyers are at risk when buying this portfolio, as they often include various levels of overdue debts. Also, buyers of debt are not always able to profit from the debt they have acquired. Thus, they can resell the portfolio to another buyer of the debt.
What does it mean to you if your debt is sold?
Many consumers think that there is no significant difference between who is owed – the creditor or the buyer of the debt, but there are some differences that you should pay attention to.
The first thing you should know is that when an account is submitted to a third party in your credit report, you create a collection account. This will update your original account balance to $ 0 as you no longer owe money to the original lender. Note, however, that the new collection account will remain there for seven years from the time the original account first became expired. Of course, this situation will reflect badly on your credit. If you have collections accounts, this makes you a risky borrower for those lenders who look at the credit report for a loan. Also, you should be aware that this account will also negatively affect your credit score and you will face higher interest rates in the future. Remember that even after you have paid a collection account in full, it will still be kept in your credit account for 7 years.
However, there is a positive side to paying two off the buyer of the debt, as you can usually negotiate a lower interest rate to pay off the debt.