Seems like a good idea...
How can I purchase my own debt? Rather than have someone else buy my debt at a reduced rate and abolish it, how about I buy my own?
How can I purchase my own debt? Rather than have someone else buy my debt at a reduced rate and abolish it, how about I buy my own?
He said that he sent a 3rd party into a bank and they sold an 18 million dollar loan he was defaulting on to them for 3.2 million. The bank didn't know about the relationship Siegel had with the 3rd party.
So I get the sense that if you know what you're doing and know the right people you can pull it off.
You could probably achieve the same result if the creditor has to "mark to market."
If you have the means to purchase your own debt at its face value, its probably selling at very close to its face value.
But the market value of your debt should be approximately (the amount the pricing algorithms expect you to be able to pay) minus (the amount the pricing algorithms expect to be expended in extracting payment from you).
So, IOW, for the average debtor (assuming that the algorithms involved are correct on average), the market price of their debt should be significantly less than they are able to pay.
If the market price of consumer debt was, on average, lower than its face value, nobody would make loans to consumers.
So the time sequence here is:
time 0 = Creditor A thinks that lending $10,000 to debtor B will create an asset worth $20,000
time 1 = Horrible things happen.
time 2 = Creditor A thinks that the asset thought to be worth $20,000 at time 0 is now worth only $100.
It is possible -- though perhaps not likely -- for it to be the case that the average value of all loans made at time 0 to be worth less than their face value at time 0, now that we are at time 2. That doesn't mean that consumer lending at time 2 would become impossible -- it means that lenders would set rates and choose debtors such that they think that new loans have values exceeding their costs.
I stopped paying my mortgage and walked away from the property. 2 years later, I called Bank Of America and negotiated to pay $2K to settle the debt. They accepted and my credit report is as if I never owned the home and walked away.
You can indeed buy your own debt at a steep discount. Its up to you to convince the debtor at how hard it will be to collect.
Disclaimer: I live in a judicial foreclosure state; it costs a substantial amount to perform foreclosures in my state, and also costs the bank to maintain the property between foreclosure and sale. Also, all of my assets were in retirement accounts, effectively judgement-proof.
I was essentially fucked. I threw my hands up and said I quit. Worked out for the best.
Of course, living in a non-recourse state is probably the best move, as you can't be held liable (your real estate secures your mortgage).
[1] http://finance.zacks.com/retirement-account-judgment-proof-5...
Somewhat offtopic: This is why I always recommend people use a Roth IRA as a savings vehicle vs a savings account. Not only can you withdraw the contributions at any time, but its shielded from creditors. Your ability to use a Roth IRA is, of course, subject to income limitations.
It'll absolutely kill your credit score, but its an option.
They'll also tack on every fee and penalty they can, so that when it does proceed to collections, the amount owed is much more than the prior balance. So if I had the cash to buy my own debt, I'd probably just make minimum payments with that money and look for opportunities to consolidate debt to get the lowest APR.
For example, a $500k home loan at 3% over 30 years costs $258,887.26 or more than 50% of the original loan amount!
I've known a couple folks with poor credit scores who bought cars that would cost them almost double the purchase price over 5 years because the interest on their debt was so high.
http://www.bankrate.com/calculators/managing-debt/annual-per...
Pay off early! or dont accrue debt.
http://www.inflation.eu/inflation-rates/united-states/histor...
And also probably much less than returns of a balance portfolio of stocks/bonds over a 30 year horizon.
If your debt is at the rate of inflation it's basically free debt so it basically just becomes a time-value of money exercise. It's cheaper to pay off your debt now then in the future.
How is it better off to pay your debt if it is 'free debt'? Wouldn't it be better to keep/invest the money elsewhere and pay the bare minimum?
This assumes elsewhere provides returns that beat inflation. I hear a lot about >3% return opportunities in index funds etc.