Once a borrower has defaulted on a debt and ceased to pay the agreed amount under the terms and conditions of the borrowing, the value of the banks asset decreases (your detbs are the banks assets). This is simply a result of the fact that the asset will not earn as much money as it had done before, in some cases it will never generate income again.

This is no different than the value of a football club decreasing when it is relegated from the Premiership to the Championship, which is a reflection of the fact that the money to be made in the Championship is far less than in the Premiership.

Have you ever watched Dragons Den on the television and wondered why various entrepreneurs value their business at £1million when they have yet to make a profit? Day dreaming is what they are doing, but if they could think rationally, they would see that without any profit, their business is worthless – the same can be said for your debts when they stop generating income for the lender.

This is why debt collection agencies buy the debts. The debt collection agencies believe that they can add value to these debts by either getting the borrower to start repaying the money owed, or simply pursuade the borrower to repay a portion of the debt, ensuring that on average the amount of monies reclaimed from borrowers exceeds the money spent on buying the debts in the first place.

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