How do debt collectors work? I had [a post about debt](https://www.reddit.com/r/YouShouldKnow/comments/fgfal5/ysk_you_have_rights_when_it_comes_to_debt/?utm_source=share&utm_medium=ios_app&utm_name=iossmf) in another sub that went viral so I’ve been getting a lot of comments on it. There’s so many people saying that they didn’t acknowledge their debt and eventually the debt collectors stop trying.
How tf is this a viable business? From what I understand, they buy debt at a discount and charge the full debt or even more than 100% to profit. Do most people pay the debt collectors? It seems like if a lot of people don’t pay that this would not be a feasible business to ever start.. so they obviously make money some how. Am I on the right track or am I missing something?
In: Economics
As you noted, they buy the debt at a (steep) discount. They’re betting on being able to recover enough of the full debt, on average, to turn a profit. Whether or not they do make a profit all depends on how much they paid for the rights to collect the debt, and how many debts they successfully collect. Clearly many of them do make a profit, though, given that this is apparently a viable business model.
You can compare this to how an insurance company operates. Sure, if a lot of people’s houses catch fire and you don’t charge a high enough premium, then your insurance business isn’t viable. But if you properly assess the risks that your clients run and adjust premiums accordingly, you can make money.
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