Why a debt collector can cost more

Example

Jane loaned John $60,000.  

It has been 6 months since he was supposed to pay it back.

Jane hires a debt collector.  John ignores the debt collector's letters of demand and phone calls. The debt collector tells Jane it is time to go legal. The debt collector hires a lawyer.

The lawyer starts a court case. Mid-way through the court case John pays back the $60,000 to avoid going to trial. He also pays $5,000 towards Jane's legal costs.  Jane's lawyer had actually charged $6,000, so she is out-of-pocket for $1,000.

When Jane first signed up with the debt collector she agreed to pay 20% of whatever she got back from John.

So, from her initial $60,000 Jane really only got back $47,000. This is because she was out-of-pocket for the debt collector's commission ($12,000) and the $1,000 portion of her legal costs John didn't pay.

If Jane had just hired a lawyer directly, she would instead have got back $59,000. She would have been $12,000 better off.