Where Can I Buy Debt? A Complete Guide

If you're asking yourself, “Where can I buy debt?” you're not alone. Debt buying is a hot business opportunity for smart investors, debt collectors and financial pros. Whether you want to buy charged off debt, zombie debt or entire portfolios, knowing the process and where to buy debt is key to maximizing your ROI.

This article will walk you through the process, the best places to buy debt and why you need to work with certified debt buyers.

What Is Debt Buying?

Debt buying is the process of buying delinquent accounts like credit card debt, medical bills or auto loans from creditors at a discount. A debt buyer purchases these delinquent accounts. Debt buyers engage in collection efforts to recover the purchased debts. These debts are often sold in bulk by creditors who want to recover some of the money owed. Buyers then try to collect the debt and make a profit from the difference between the purchase price and the amount collected.

Where Can I Buy Debt?

Directly From Creditors

Banks, credit unions, and other financial institutions sell their outstanding debt to recoup some losses. Buying directly from these creditors gives you access to fresher debt portfolios and more detailed account information.

• Pros: Less competition and more detailed account data
• Cons: Requires a direct relationship with the creditor

Debt Brokers

Debt brokers act as intermediaries in the secondary debt market, facilitating transactions between creditors and buyers, helping you find portfolios that fit your needs.

They offer:

Charged off credit card debt

• Medical debt portfolios
• Auto loans
• Zombie debt (older, written off accounts)

Pros: Access to many portfolios

Online Debt Marketplaces

Online platforms are a marketplace where debt buyers and sellers connect. Purchasing debt portfolios through online marketplaces allows buyers to leverage competitive bidding and transparency. These sites allow you to browse and bid on debt portfolios, making it transparent and easy.

Examples of online marketplaces:

• Debexpert
• Everchain
• Debttrader

Pros: Easy to get in and competitive bidding

Cons: More competition and potentially higher prices

Certified Debt Buyers (ACA and RMAI Members)

When buying debt you need to work with certified debt buyers who follow industry best practices and comply with federal and state laws. Certified debt buyers differ from debt collection agencies in their legal authority and operational practices. Organizations like the Association of Credit and Collection Professionals (ACA International) and the Receivables Management Association International (RMAI) certify buyers and sellers.

Why Choose Certified Buyers? Certified members follow strict ethical guidelines and provide transparent transactions, reducing your risk of buying bad or uncollectible debt.

Step 1: What Kind of Debt Do You Want to Buy

Choose the debt category that fits your expertise and goals:

Credit Card Debt: High availability and collectability

Mastering market insights and collection strategies is essential for success in the debt collection industry.

Medical Debt: Specialized knowledge required but high returns

Zombie Debt: Older debt purchased at deep discounts

Step 2: Research the Seller

• Verify the seller's credibility especially for larger portfolios.
• Look for ACA or RMAI certification to ensure compliance and professionalism.

Step 3: Review the Debt Portfolio

Before you buy, review the portfolio:

• Age of Debt: Older debt may have lower recovery rates but is cheaper to buy. Collection agencies manage collection efforts on behalf of creditors, unlike debt buyers who acquire debts directly.
• Geography: Make sure the debt is from an area you’re licensed to collect in.
• Documentation: Make sure account information is complete including charge-off dates, payment history and contact info.

Step 4: Close the Deal

• Negotiate the purchase price, usually expressed as a percentage of the portfolio's face value (e.g. 5-10 cents on the dollar).
• Use a secure platform to complete the sale.

Types of Debt Portfolios

Debt portfolios can be categorized into various types based on the nature of the debt, the debtor, and the creditor. Understanding these types is crucial for debt buyers to make informed decisions about which portfolios to purchase and how to manage them effectively. Some common types of debt portfolios include:

• Consumer Debt Portfolios: These portfolios consist of debts owed by individuals, such as credit card debt, personal loans, and mortgages. Consumer debt portfolios are often attractive to debt buyers due to their high availability and the potential for significant returns.
• Commercial Debt Portfolios: These portfolios comprise debts owed by businesses, including loans, lines of credit, and other forms of commercial debt. Commercial debt portfolios can be lucrative but may require specialized knowledge to manage effectively.
• Medical Debt Portfolios: These portfolios consist of debts related to medical expenses, such as hospital bills, doctor’s fees, and other healthcare-related costs. Medical debt portfolios can offer high returns but often require a deep understanding of the healthcare industry and patient billing practices.
• Student Loan Debt Portfolios: These portfolios comprise debts related to student loans, including federal and private loans. Student loan debt portfolios can be complex due to varying repayment terms and borrower protections.
• Government Debt Portfolios: These portfolios consist of debts owed to government agencies, such as tax debts and other forms of government-backed debt. Government debt portfolios can be stable investments but may involve navigating bureaucratic processes.

Each type of debt portfolio has its unique characteristics, risks, and potential returns. Debt buyers must carefully evaluate these factors to determine which portfolios align with their investment goals and risk tolerance.

Understanding the Risks and Regulations

Debt buying involves several risks and regulations that debt buyers must be aware of to operate successfully. Some of the key risks and regulations include:

• Credit Risk: This is the risk that debtors may default on their payments, reducing the value of the debt portfolio. Effective risk management strategies are essential to mitigate this risk.
• Interest Rate Risk: Changes in interest rates can affect the value of a debt portfolio. Debt buyers need to be aware of market conditions and interest rate trends to manage this risk effectively.
• Regulatory Risk: The debt buying industry is subject to various laws and regulations that can impact operations. Staying informed about regulatory changes is crucial for compliance and risk management.
• Fair Debt Collection Practices Act (FDCPA): This federal law regulates debt collection practices and prohibits harassment, false statements, and other unfair practices. Compliance with the FDCPA is essential to avoid legal issues and maintain ethical standards.
• Telephone Consumer Protection Act (TCPA): This federal law regulates telemarketing and debt collection calls. Debt buyers must adhere to TCPA guidelines to avoid penalties and ensure respectful communication with debtors.
• Consumer Financial Protection Bureau (CFPB): The CFPB is a government agency that regulates consumer financial products and services, including debt buying. Debt buyers must comply with CFPB regulations to operate legally and ethically.

Debt buyers must comply with these regulations and manage these risks to avoid legal and financial consequences. Understanding the regulatory landscape and implementing robust compliance programs are key to successful debt buying.

Pricing and Valuation of a Debt Portfolio

The pricing and valuation of a debt portfolio depend on several factors, including:

• Type of Debt: The type of debt, such as consumer or commercial debt, affects its value. Different types of debt have varying levels of risk and potential returns, influencing their market price.
• Age of the Debt: The older the debt, the lower its value. Older debts are often harder to collect, which reduces their attractiveness to debt buyers.
• Creditworthiness of the Debtor: The creditworthiness of the debtor affects the likelihood of repayment. Portfolios with higher creditworthy debtors are generally more valuable.
• Potential for Recovery: The potential for recovery, including the likelihood of payment and the amount that can be recovered, affects the value of the debt portfolio. Debt buyers must assess recovery rates to determine the portfolio’s worth.

Debt buyers use various methods to value debt portfolios, including:

• Discounted Cash Flow (DCF) Analysis: This method estimates the present value of future cash flows from the debt portfolio. It considers the time value of money and provides a comprehensive valuation.
• Multiple of Earnings: This method values the debt portfolio based on a multiple of its earnings. It is a straightforward approach that considers the portfolio’s profitability.
• Comparable Sales: This method values the debt portfolio based on the sale price of similar portfolios. It provides a market-based valuation by comparing recent transactions.

Debt buyers must carefully evaluate these factors and use appropriate valuation methods to determine the fair value of a debt portfolio. Accurate pricing and valuation are crucial for making informed investment decisions and achieving profitable outcomes in the debt buying process.

Where to Buy Debt Portfolios?

Debt portfolios can be bought from:

• Banks and Financial Institutions: Sell fresh charge-offs directly.
• Debt Brokers: Offer portfolios to fit your needs.
• Online Marketplaces: Good for smaller or niche buys.

Where to Buy Zombie Debt?

Zombie debt is older, written off accounts that creditors have given up on. While hard to collect, zombie debt can be very profitable when bought at deep discounts.

• Sources for Zombie Debt:
• Online marketplaces like DebtTrader or RMAI members
• Specialized debt brokers

Why Choose Certified Debt Buyers

• Compliance with Laws: Certified buyers follow the FDCPA and TCPA, reducing legal risk.
• Better Portfolios: ACA and RMAI members prioritize transparency and portfolio quality.
• Ethical Practices: Certified members follow ethical guidelines, responsible debt collection.

FAQs: Where to Buy Debt?

Q: Can I Buy Debt Without a License? A: Licensing requirements vary by state. Check your state laws first.

Q: How much does it cost to buy debt? A: Prices vary but usually 1-10 cents per dollar of the debt's face value.

Q: What's the risk of buying debt? A: Uncollectible accounts, legal compliance issues and incomplete debtor info. Working with certified buyers minimizes these risks.

Bottom Line

Now that you know where to buy debt, it's just the first step. Whether you buy from certified debt buyers, brokers or online marketplaces, due diligence and a plan is key to success. Organizations like ACA International and RMAI provide a network of trusted buyers and sellers so you can buy debt with confidence.

Ready to start? Explore your options today and take the first step toward profitable debt investments! 🚀