Australia may have a small population, but it has a number of things that makes it stand out against other countries. Australia has a huge number of highly rated beaches and it is one of the most urbanised countries in the world (excluding city states like Singapore).
The Bank for International Settlements recently released a report which showed which countries had high and rising household debt together. Australia was the second worst of this group (behind Switzerland) which included countries like Canada, Sweden, Norway and South Korea.
This debt has helped push up property prices to very high global levels and could cause a host of problems if it goes pear shaped. A lot of our economy is relying on this debt being sustained and paid each month.
However, if the economy were to truly tank then there would be a lot of debt floating around, something that three of Australia's largest debt collector companies could benefit from in the long-term (it would be messy in the short-term for them too):
Pioneer Credit Ltd (ASX: PNC)
Pioneer has seen its share price grow by 57% over the last year. It's the smallest of the three debt collectors in this article, but perhaps that means it has the most potential. It earns a lot of its revenue by working with the big financial institutions, so Pioneer could get a lot more active if there's an economic downturn.
It's currently trading at 12x FY18's estimated earnings with a grossed-up dividend yield of 4.57%.
Collection House Limited (ASX: CLH)
Collection House has give its shareholders quite a rollercoaster, even just over the last three years. Recent disagreements about how to account for software aside, the business is struggling to replicate the consistent growth it achieved for several years after the GFC.
Debt collectors purchase debt and then (hopefully) make profit on that debt for several years after. Collection House fell behind its competitors a couple of years ago and its performance is still paying the price. If the economy falters, it may be able to gain from its conservative approach.
Collection House is currently trading at 9x FY18's estimated earnings with a grossed-up dividend yield of 8.32%
Credit Corp Group Limited (ASX: CCP)
Credit Corp has been one of the best performing mid-caps since the GFC. The share price reached a low of $0.40 and is now at an impressive $23.12.
Collection House's losses have been Credit Corp's gain. It has grown its debt ledgers impressively and is now reaping the rewards of that.
Although debt collectors aren't the most wholesome of investments, particularly with Credit Corp's involvement with short-term loan provider 'Wallet Wizard', there's no denying that Credit Corp has been a fantastic choice for investors over the past several years.
Credit Corp is currently trading at 17x FY18's estimated earnings with a grossed-up dividend yield of 3.58%.
Foolish takeaway
Australia may be staring a debt monster in the face, but that doesn't mean that there aren't ways to potentially profit from it in the future. The nature of debt collectors means they can be volatile, so after a large share price fall could be a good time to buy.
