Collection Agencies Will Profit When Collecting Your Debts

by : Gary Milton

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.

Agencies and corporations whose names these individuals have never heard of suddenly ask for immediate payments of large sums of money.

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. In the past, it was more profitable to just forget such old debts.

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 pull up their databases and target those they expect to persuade to pay the debt. On some occasions the collection agency's costs will only be a quarter dollar for every $100 debt. At that low rate, if they make the delinquent borrower pay back even one dollar of debt, they make their money back. 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. People are harassed night and day by phone calls, made to feel worried and guilty until their spirits break and they pay up.

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 $36.8 million in profits that year, and increased its revenues fivefold since 2001. The upshot? Make sure to pay off all your debts. Also at this time, be ready to fight with these over eager debt collection agencies that are toeing the line of the law with fierce tactics in order to repay your debts, some of which are not actually real debts.