By now we all know the debt problem in America has gotten a little out of hand. The average American is in $8,000 worth of credit card debt. Let’s not forgot about the mortgages, hospital and utility bills as well. While many consumers are desperate for debt relief, other entrepreneurs are making a fortune off of them. No, we’re not talking about the credit card companies either. Debt collection is becoming very popular as business entity. In fact, the industry alone is worth $15 billion. One doesn’t need to work for a debt collection company to start collecting. Some companies and various websites allow you to buy other peoples debt for pennies on the dollar. Yep, this means instead of Sally picking up a babysitting gig she can buy debt for pennies on the dollar and make a killing.
Before we get into the details let’s first take a look at how debt collection companies make money in the first place. Debt collection takes time and human resources. Many companies feel it is not worth their time to chase after certain consumers trying to get every penny owed to them. Instead, a company will lump their outstanding debts and sell them to a debt collection company. For instance, if a company is owed $50,000 from debtors they might sell this debt amount for $15,000 to a debt collection company. The debt collection agency then has rights to the full $50,000 owed. If all debts are collected that’s $35,000 in profit.
The Bureau of Labor Statistics predicts that by 2016, the debt collection industry will grow by as much as 23%, making it one of the fastest growing industries. Most of this demand will spur from doctors’ offices, hospitals and government agencies, including the IRS.
We’ve seen many major companies stock prices falling throughout the past few years in the market, but publicly traded debt collection agencies are rising and becoming a highly favored investment. The industry has become so profitable that small home based businesses are getting in on the profits. New technology has made it easier than ever to run such a business. According to smart Money Magazine profits have tripled to $15 billion. Just last year agencies were able to collect $40 billion in debt. To illustrate this number more drastically that’s $133 for every person in the United States. In 2005 PriceWatersCoopers performed a survey claiming that U.S. businesses sent $141 billion in bad debt to collection agencies, of which $51 billion was collected. That was 2005 before the financial collapse the numbers have only increased over time.
Like with all things that show great success, collections companies are beginning to outsource their efforts to other countries. In most cases representatives speak poor English and aren’t familiar with the Fair Debt Collection Practices Act. Not only big businesses turning toward debt collection agencies, but our own government as well. Government departments are selling their parking tickets and other fines to collections agencies.
So is this opportunity or a problem? A little bit of both. Everyone likes making money so can we really blame people for cashing in? The problem isn’t in the debt collection companies. As long as they are adhering to the Fair Debt Collections Practice act, then they are just as legitimate a company as any other. In order for a change to take place it takes place in the Americans accruing debt, and the institutions giving them credit. So before calling collectors scum, you might want to call them successful scum because they are making a killing off of other people’s mistakes.
