How Collection Agencies Profit From Your Forgotten Debts

Many Americans are all-too-familiar with the aggressive tactics of today's collections agencies. Perhaps they checked out a surprisingly expensive library book or two while in college and then forgot about it; perhaps someone stole their credit card and ran up a huge bill. Years later, when they least expect it, these innocent people get mean, threatening phone calls.

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.

Nowadays, the situation has changed. 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. Many of these debt collection companies can appear almost overnight, buying old credit card accounts at their maximum and old forgotten accounts from giants like Amex and Mastercard. 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. 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.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. 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.

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