Making Money From Charged-Off Credit Card Debts - Evaluating Loan Portfolios

A critical factor to making money from credit card debt is your skill at evaluating the loan portfolios. It is said that your aim in business is to make money when you buy, not when you sell. And this holds true in the case of purchasing credit card debt. Before you make a bid you have to do your due diligence and analyse and evaluate each and every loan in the portfolio that you are reviewing. It is only by being thorough at this stage that you will know how much you should bid for the loans.

Now someone who is an expert when it comes to evaluating credit card loan portfolios is Bill Bartmann. During the Savings and Loan Crisis in the 1980s and 1990s he went from bankrupt to billionaire buying charged-off credit card debts and for pennies on the dollar and then collecting nickels, dimes and quarters on his investment.

He derived 64 different qualities against which to evaluate credit card loans. Can you imagine assessing anything using 64 different criteria, let alone credit card portfolios? However, don't worry. If you're just starting out then don't expect to assess loans using all these criteria from the get go.

Start out by using some of the major criteria and then gradually incorporate more and more as your proficiency improves. And this should have a compound effect on your ROI (Return on Investment) for as you continue to improve your loan evaluation you will further improve your proficiency in buying charged off loans and collecting on those loans to make a profit.

Some of the factors you should take into account are pretty obvious and will be contained within the seller's survey. However, other factors will not be spelt out in this report. In some cases you'll need to read between the lines and, in other cases, information that could influence what you end up bidding on a portfolio may not be contained within the seller's survey at all.

So let's look at a few examples of some of the factors you should take into account when reviewing a loan portfolio:

Geographic Region
There are some areas that, for various reasons, have been hit harder by the recession than others. Some areas are also generally known to be less affluent. It is these types of factors based on geographical location that could have an adverse effect on the collectability of the loans you are reviewing.

Major Employers Moving In and Out of a Region
If a major employer moves out of a region this could have a seriously detrimental effect on the local economy and individuals living in that area may find themselves particularly hard hit. Conversely, if a major employer moves into the area then the increase in jobs and injection of capital into the area could have a positive effect on loan collectability.

Work Ethic
This may be difficult to determine but areas are recognised for being inhabited by people who generally have a very good work ethic. Such individuals will be more likely to pull the stops out to find employment so that they can repay any debt they own.

Payment History
Consider someone who suddenly stops making regular payments. Often, the cessation of those regular payments can be linked to a particular event that impacted upon that person's finances in a negative manner. Depending upon the nature of that event, you can make an educated guess as to whether or not that person will be able to get back on their financial feet.