I’ve seen stories of individuals buying up a bunch of debt for cents on the dollar then just forgiving it. Why can’t this been done on an individual scale?
In: 4529
Sometimes you can buy your own debt and cancel it for a fraction of the cost, it’s just called negotiating a lower amount to repay. Same cause and effect without the extra steps. Either way your credit score is going to be screwed.
If you owe me $10k, but you’re not making payments and I think you’ll never pay and have nothing I can possess to pay the debt I have a few options.
1 – just accept the loss
2 – negotiate a lower payment (basically what you’re asking about self cancellation)
3 – hire a thumb-breaker (collection agency) to try and force you to pay.
4 – Someone might think they can get money out of you and offer maybe $5k to me and take over the $10k debt. If they can get more than that, even if less than the total owed, they make money, and I’ve cut my loss.
The only reason people would take on debt just to cancel it would be out of kindness, or as part of a consolidated debt portfolio where individual bad debts are uneconomic to chase.
There have been other good answers. This answer covers some territory they did not (so far).
First, to buy a loan, you have to come up with the cash for it, even if the total amount is discounted against the current value of the loan. If you could do that you wouldn’t be in a loan delinquincy situation.
There is a possible alternative in certain circumstances. If your loan is with a major commercial lender such as a bank or large mortgage company, this probably won’t work. They are very bureauocratically streamlined about their loans and usually can’t make independent decisions about them.
But. If it is with a small local bank or even a private lender, there are private businesses that buy loans and are experienced at negotiating with original lenders.
Because they do get the loan at a discount they are likely to be willing to re-negotiate the whole thing. This can be especially helpful if the loan has already been paid down to some extent. They want a steady cash flow, so failures to make payments will result in quick foreclosure.
You can try internet searching but some don’t have websites because they are small and don’t need them. Many work by word of mouth. Many are family-run, or run by a very small group. Ask around local real estate investors if you know where to find any. Look for REIA and REIC meetings that may have loan buyers at their meetings. “REIA” = Real Estate Investors Association, “REIC” = Real Estate Investors Club.
There have been other good answers. This answer covers some territory they did not (so far).
First, to buy a loan, you have to come up with the cash for it, even if the total amount is discounted against the current value of the loan. If you could do that you wouldn’t be in a loan delinquincy situation.
There is a possible alternative in certain circumstances. If your loan is with a major commercial lender such as a bank or large mortgage company, this probably won’t work. They are very bureauocratically streamlined about their loans and usually can’t make independent decisions about them.
But. If it is with a small local bank or even a private lender, there are private businesses that buy loans and are experienced at negotiating with original lenders.
Because they do get the loan at a discount they are likely to be willing to re-negotiate the whole thing. This can be especially helpful if the loan has already been paid down to some extent. They want a steady cash flow, so failures to make payments will result in quick foreclosure.
You can try internet searching but some don’t have websites because they are small and don’t need them. Many work by word of mouth. Many are family-run, or run by a very small group. Ask around local real estate investors if you know where to find any. Look for REIA and REIC meetings that may have loan buyers at their meetings. “REIA” = Real Estate Investors Association, “REIC” = Real Estate Investors Club.
There have been other good answers. This answer covers some territory they did not (so far).
First, to buy a loan, you have to come up with the cash for it, even if the total amount is discounted against the current value of the loan. If you could do that you wouldn’t be in a loan delinquincy situation.
There is a possible alternative in certain circumstances. If your loan is with a major commercial lender such as a bank or large mortgage company, this probably won’t work. They are very bureauocratically streamlined about their loans and usually can’t make independent decisions about them.
But. If it is with a small local bank or even a private lender, there are private businesses that buy loans and are experienced at negotiating with original lenders.
Because they do get the loan at a discount they are likely to be willing to re-negotiate the whole thing. This can be especially helpful if the loan has already been paid down to some extent. They want a steady cash flow, so failures to make payments will result in quick foreclosure.
You can try internet searching but some don’t have websites because they are small and don’t need them. Many work by word of mouth. Many are family-run, or run by a very small group. Ask around local real estate investors if you know where to find any. Look for REIA and REIC meetings that may have loan buyers at their meetings. “REIA” = Real Estate Investors Association, “REIC” = Real Estate Investors Club.
Let’s say you go out to eat with some friends (Bob, Larry, and you)
Bob doesn’t have money, but asks if he could borrow $20 from you.
You say okay, and Bob writes you a little piece of paper that says “Bob owes you $20”
The debt is created.
Now, you try for some time to get the money from Bob.
But Bob is dodging your calls and just not paying up.
You get pretty frustrated at Bob.
You think this $20 is a loss.
You run into Larry one day and tell Larry your story.
Larry says “I think I can get the money from him. How about I give you $10 and Bob doesn’t you money anymore. He owes me… give that paper Bob gave you”
You think about it and say Ok.
Larry just bought Bob’s debt to you for half price.
Now if Larry is able to get Bob to pay the full $20.
He makes a nice $10 profit for his trouble.
If not, he takes a $10 loss.
That’s the game of debt collection agencies.
They buy debt at a big discount and hope to turn a profit by collecting something.
Now, why can’t you just buy your own debt?
If you had the money, you absolutely could get the same result. This is called negotiating your debt. Remember, the only reason you even sold your debt to Larry was because you couldn’t get Bob to pay despite spending time trying to get it from him. Bob could have called you anytime and said “Listen…I really don’t have $20. I just don’t have the money bro. You know times are tough and I don’t even have a job. How about I give you $10 and we call it even.” Most lenders would rather have an easy negotiation as opposed to going to collections because they’d probably get more money. It costs them money to send you letters, call you, have their staff bothering you about the debt. The more effort in time and labor they spend trying to get money out of you, the more it costs them. Eventually they will say screw it and send it to collections.
The other reason is that before they send it to collections at a really low rate… like pennies on the dollar, they generally want it out and done. So they will probably have a contract with a collections agency or sell a whole bunch of debt in one go. Remember the collection agency might buy 1000 debts at one time. They might be able to collect on some of those and not collect on others. That’s why they get a very discounted rate. They’re taking on a very risky proposal and giving the company a guaranteed fixed payment. If you have the money to pay 1000 people’s debt (even at a discounted rate)… you probably could have already paid your own. And you’re probably not big or wealthy enough to have collection agency contracts…
Let’s say you go out to eat with some friends (Bob, Larry, and you)
Bob doesn’t have money, but asks if he could borrow $20 from you.
You say okay, and Bob writes you a little piece of paper that says “Bob owes you $20”
The debt is created.
Now, you try for some time to get the money from Bob.
But Bob is dodging your calls and just not paying up.
You get pretty frustrated at Bob.
You think this $20 is a loss.
You run into Larry one day and tell Larry your story.
Larry says “I think I can get the money from him. How about I give you $10 and Bob doesn’t you money anymore. He owes me… give that paper Bob gave you”
You think about it and say Ok.
Larry just bought Bob’s debt to you for half price.
Now if Larry is able to get Bob to pay the full $20.
He makes a nice $10 profit for his trouble.
If not, he takes a $10 loss.
That’s the game of debt collection agencies.
They buy debt at a big discount and hope to turn a profit by collecting something.
Now, why can’t you just buy your own debt?
If you had the money, you absolutely could get the same result. This is called negotiating your debt. Remember, the only reason you even sold your debt to Larry was because you couldn’t get Bob to pay despite spending time trying to get it from him. Bob could have called you anytime and said “Listen…I really don’t have $20. I just don’t have the money bro. You know times are tough and I don’t even have a job. How about I give you $10 and we call it even.” Most lenders would rather have an easy negotiation as opposed to going to collections because they’d probably get more money. It costs them money to send you letters, call you, have their staff bothering you about the debt. The more effort in time and labor they spend trying to get money out of you, the more it costs them. Eventually they will say screw it and send it to collections.
The other reason is that before they send it to collections at a really low rate… like pennies on the dollar, they generally want it out and done. So they will probably have a contract with a collections agency or sell a whole bunch of debt in one go. Remember the collection agency might buy 1000 debts at one time. They might be able to collect on some of those and not collect on others. That’s why they get a very discounted rate. They’re taking on a very risky proposal and giving the company a guaranteed fixed payment. If you have the money to pay 1000 people’s debt (even at a discounted rate)… you probably could have already paid your own. And you’re probably not big or wealthy enough to have collection agency contracts…
>why can’t someone just purchase their own debt for a fraction of the cost
To purchase it, you need to come to an agreement on price with the person selling it (otherwise, if they don’t agree, it’s called robbery). Why would they sell it to you for a fraction of what it’s worth?
>why can’t someone just purchase their own debt for a fraction of the cost
To purchase it, you need to come to an agreement on price with the person selling it (otherwise, if they don’t agree, it’s called robbery). Why would they sell it to you for a fraction of what it’s worth?
At the point the debt is bought, it’s already been reported as a written off account and harmed your credit score/report.
If you could buy your own debt at pennies on the dollar, then people would just make the practice of doing so until banks just stop lending to people or jack up the interest rates to extreme levels.
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