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How Do Debt Recovery Agencies Work and Make Money?

A debt recovery agency is basically an agency that tries to collect an overdue or outstanding debt. Debt recovery agencies employ debt collectors who then go out to recover debts.

Debt collectors may work for agencies, become self-employed, and some are known to be employed by attorneys. When debts stay over 60 days without payment, they are said to have become delinquent. When this happens, creditors may contract a recovery agency to pursue the payment.

Debt collectors are then assigned to go after the debtor and collect the money for their employers. It should be noted here that debt recovery agencies do not own the monies when they have been collected. The amount owed by the consumer is still owned and controlled by the original creditor. The recovery agency only works as a middleman between the consumer and the creditor in exchange for a percentage of the amount collected.

When they deal has been done, the creditor pays the collector a substantial percentage, typically between 25 and 45 percent of the amount collected, depending on earlier agreement.

Debt collectors use letters and phone calls to contact delinquent customers and try to convince them to repay what they owe. When the collectors can’t reach the debtor with the contact information provided by the original creditor, they can use computer software to not only research, but to try and find the debtor. When all these fail, collector agencies can resort to hiring private investigators to do the job.

Typically, before collecting agencies take over a debt, they conduct preliminary investigations on the debtor’s assets such as bank and brokerage accounts, to determine a debtor’s ability to repay.

Collectors sometimes go as far as reporting delinquent debts to credit bureaus in order to encourage consumers to pay, because unpaid debts can seriously reduce a consumer’s credit score, and nobody wants to risk that.

Types of Debts Recovery Agencies Collect

Debt recovery agencies collect delinquent debts of all types including credit card debt, medical debt, automobile loan debt, personal loan debt, business debt, student loan debt and even unpaid utility, car, government, medical debts and cell phone bills.

How Recovery Agencies Find Debtors

Debt collectors have acquired a bad reputation for harassing consumers, and they do this through sending letters, mails, placing loads of phone calls and such. If the affected consumers have moved from the address that was given to the creditor, recovery agencies still have ways of locating them.

Those ways may include; through relatives, friends, employers, and neighbors; through phone books, the post office, state motor vehicle department, voter’s registration records, bank records, credit bureaus, data aggregators, internet searches, skip tracers, pretexters, private investigators, etc.

How Debt Recovery Agencies Work

Firstly, debt recovery agencies make contact with the delinquent consumers informing them that they have been assigned to collect their debts. If the contact is of no effect, some recovery agencies may try what is known as debt garnishment. The recovery agencies directly contact the debtor’s employer. This method is only used when the debtor is employed. In wage garnishment, a portion of the wages will be deducted directly from the debtor’s paycheck. It should be noted that not all states allow wage garnishment, but it is typically one of the first things collectors try when seeking to recover debts.

If the debtor is not employed or the state in question does not allow for debt garnishment, the recovery agency can then decide to report the debt to credit bureaus with the hope that the scare of a reduced credit score would prompt the debtor to pay up. It does in most instances which is why the method is still being applied.

If the debt in question is running into thousands of dollars, the recovery agency may be forced to sue the debtor. When judgment is obtained, the recovery agency is then free to collect the debtor’s paycheck or have access to his or her bank account. This judgment also allows a collector to begin garnishing wages and bank accounts, if such is permissible, but the collector must have to contact the debtor’s employer and bank to request the money.

In extreme cases, debt recovery agencies may be forced to place a lien on the debtor’s property or force him or her into selling assets in order to produce the said funds.

How Debt Recovery Agencies Make Their Money

Debt collectors get paid when they recover a delinquent debt. This then means that the more they recover, the more they earn. Recovery agencies may be paid between 20 to 60 percent of the debts they recover based on agreement entered into with the creditor.

Buying Debt

When the original creditor decides that they no longer want to own the debt, or when they have decided that they are not likely to collect the debt, they most often sell off the debt cheaply to a debt buying agency.

Debts are not sold off singly. Creditors package together numerous accounts with similar features and sell them off as a group. Debt buyers pick the debts with the criteria that they are not too old, or that no collector has already worked on them. They also pick accounts with higher debts, and accounts that are not just utility bills (because such debts are sometimes small and are difficult to collect).

Debt buyers also consider the type of debt, debtor demographics, who is selling the debt, previous actions taken on the debt, validation of current contact information on the debtors, face value and cost of debt before considering buying over the debt.

Debt buyers often purchase these packages through a bidding process, and paying between 4 and 8 cents for every $1 of debt face value. The older the debt, the less it costs, since it is less likely to be collected.

It should also be noted that the type of debt also influences the price. Mortgage debt is worth more, while utility debt is worth less. Debt buyers keep everything they collect because they have purchased the debt from the original creditor, and as such they are not required to send any of the amount collected to the creditor.


Debt collection is a legitimate business all over the world. Many collectors are honest people who are just trying to do their jobs. They willingly work with debtors to create a plan that would help them repay their debts whether this means paying it in full, making monthly payments over a period of time, or even paying a fraction of the debt upfront.