Collection Attorneys vs. Collection Agencies

If internal efforts have failed to resolve a debt issue, it may be time to call in a professional. But who? A collection attorney or a collection agency.

Most companies, hoping to avoid legal action, start with the agency. They are usually cheaper than collection attorneys. Initially, collection agencies take many of the same actions against the debtor that you may have already taken,starting with a series of letters and phone contact if the initial letters are not effective. However, the third-party power that collection agencies exhibit combined with specialized phone systems, software, and training often make them more efficient and cost-effective at collecting on delinquent accounts.

The costs for collection services can vary greatly depending on the volume of accounts being submitted, the average size of an account, and the existing age of the accounts. Most collection agencies work on a percentage basis where they only earn fees only on what they collect, while others offer flat-fee pricing. While the pay-for-performance model seems more appealing, most agencies that work on a percentage basis need to charge high percentages and are typically only motivated to collect on larger and easier to resolve accounts.

If your portfolio of bad debt consists mainly of extremely delinquent accounts with high balances using a collection attorney may be your best course of action. A debt collection attorney can force a slow paying individual or company into court and they often exhibit more power than a collection agency, but the costs involved can often make this prohibitive unless the balances to be collected are high. Most collection attorneys charge an hourly fee, collect at least one-third of the amount recovered, or both. They usually charge a minimum fee or may require a minimum amount of debt. Plus, payment to the attorney is typically in addition to any court-related fees and charges connected with a lawsuit, if you decide to pursue a judgment in court.

Debt Collection

When a consumer does not pay a debt, lenders or collection agencies have the right to take reasonable steps to give the consumer a chance to pay. They can usually telephone the consumer and make other reasonable efforts to let the consumer know that the debt is owed and the amount. Consumers can expect to receive letters giving them the same information.

Under most circumstances, lenders – and in some states debt collectors and collection agencies – can sue the consumer to recover money owed.

Advice worth repeating

"Know the difference between needs and wants."
Poster "ARCHIEtheDRAGON" recalls his mother asking, "What do you need that for?" whenever he bought anything as a kid. Annoying? Maybe. But "now I hear her voice in my head whenever I am spending money . It keeps me from buying a lot of crap that I don't need." "Jennys Mom" illustrated it this way: "You need food. You want prime rib. That example is perfect for the want vs. need debate in my head!" Poster "Clara Bear" said she heard similar advice from her grandmother.

"Whenever I would complain about not having the newest coolest clothes or whatever when I was younger, my grandmother would always say, 'We have everything we need and most of what we want, too.' That would make me realize that even though we weren't the richest family in town, we really did have plenty. I still think about that today when I'm lusting over some ridiculously expensive item at the mall. It makes me remember that I have a place to live, plenty to eat and a great family as well as much of the stuff I want. I (usually) put the item back on the shelf and walk away satisfied with what I already have."



"Think of the true cost."
Anything you want to buy involves a number of costs. The price tag is just the start.
"I see something that would look great on my table," poster "Mamasita99" wrote. "I have to give up the cash for it that won't be able to work for me somewhere else. Then I have to think of all the time and energy I'll waste cleaning this item, keeping it out of my kids' hands, and packing it up and hauling it somewhere else when we move in a year. Most of the time, the true cost of the item is too high for me."



"Buy quality."
Sally Herigstad knows what it's like living on a tight budget. Before she became a certified public accountant and author, she was a stay-at-home mom who at one point fended off calls from collection agencies (an experience she recounts in her book, "Help! I Can't Pay My Bills: Surviving a Financial Crisis. " As Herigstad and her husband rebuilt their finances, though, she remembered her mother's advice to buy quality when it counts. "My mom can stretch a dollar farther than anyone I know, but that doesn't mean she doesn't buy nice things. Mom taught us to buy high-quality things at stores that stand behind what they sell. That way, if anything wore out or quit working before its time, she knew she could take it back -- and she often did. You actually save money by buying things of higher quality that last than by getting cheap stuff you have to throw away in no time."

"If your outgo exceeds your income, your upkeep will be your downfall."
Poster "skywind" wrote that his grandfather often quoted this saying. It's another way of saying, "Live within your means," or, more elaborately, "Be careful of adding new expenses to the ones you've already got."


"Don't pay interest on anything that loses value."
A bunch of posters cited variations on this theme of avoiding credit card debt and borrowing only to buy property or other assets that will appreciate.
Poster "dancinmama" was told by her parents "Never pay interest on anything but real estate." In 27 years, she and her husband have taken the advice to heart.
"We have never had a car loan or paid a penny of interest on credit cards. We have saved our money and invested our money. I have been a (stay-at-home mom) since 1986 so most of this time we did it on one income, under 6 figures, on the central coast of California (cost of living was not cheap). Our net worth is now in excess of $2 million."
Poster "Honey Bucket" and her fiancé are just starting out, but they're already living a variation on this advice, which is "save today for what you want tomorrow."
"We've both been saving for retirement, wedding and housing. The difference it will make is that we will be able to pay for things instead of borrowing or having (credit card) debt. Our lives together will be financially secure because of this!!!!"


"Don't co-sign a loan."
Co-signing puts your good credit in the hands of someone else -- who could trash it with a single late payment. Poster "bookladyfdl" said her parents refused to co-sign a car loan for her after she graduated college, and today she's grateful. "They lovingly explained that their credit report would show this loan, which could affect any loans they might need. They also explained to me that their rule of thumb was not to co-sign for any amounts they could not personally loan. If you can't afford to give it, you can't afford to pay the loan back, should you have to do so.
"This credo saved me early in my marriage. Without my knowledge, my husband agreed that we would co-sign on a loan his brother was taking out. The papers came and I discovered that we were co-signing on a large loan at 32% interest, and that the reason he was being forced to take it out was that his brother had defaulted on a credit card and this was the last step before court. . . . Out of love for his brother, my husband wanted to help out. However, I relied upon my parents' advice, put my foot down and refused to let either of us sign on the loan. Less than five years down the road, BIL and his new wife have a terrible financial situation, raiding 401(k) funds for car repairs, etc.


"If we'd have co-signed, I know we'd have been forced to pay off that loan to preserve our own credit. Not only would we not have been able to afford it, but it would have put an irreparable rift in family relations. Mom and Dad taught me that sometimes you have to take care of yourself and secure your future , even if it means friends or family members may have a more difficult time."

"If you need more money, then go out and make more money."
There are limits to how far you can scrimp and save. Often the fastest way out of debt and into wealth is generating more income.
Poster "Avalon_2" learned this from parents whose educations stopped by the sixth grade.
"Neither (was) afraid of hard work and we never lacked for anything as I was growing up," Avalon_2 wrote. "They taught me that as long as there is health, anything else can be worked for. To them the word 'retirement' didn't exist. You work until you can't work anymore.

"Don't gamble more than you can afford to lose."
My colleague, MSN investment writer Jim Jubak, explains:
"When I was a kid, our big extended family would gather on Christmas Eve for a big dinner of fish and my grandmother's pierogi, followed by drinking, followed by singing off-key with my Uncle Eddie, followed by more drinking. The evening always ended with the oldest kid, yours truly, settled around a card table battling three adults in a game of 25-cents a hand pinochle. I almost always came out a big winner -- $4 or so -- mainly because by that time in the evening I was the only one who could accurately count the pips on the cards. One year, having puzzled it over in my head, I asked my Aunt Millie the logical question: Why do you play cards with me every year when you know you're going to lose? Swirling her vodka in her glass, she said to me: Because I never gamble more than I can afford to lose. And then she pinched my cheek.
"Hated the pinch. Appreciated the advice.


"Wall Street has developed lots of way more sophisticated methods for controlling risk. But I think my Aunt's has one very real virtue -- it keeps you focused on the real aim of the game, which isn't making money for its own sake, but to have enough of the stuff to get you where you want to go. It's helped me get over losses in bear markets and in individual stocks. And reminded me that I can occasionally take a flier, as long as the game in itself is fun and I'm not gambling more than I can afford to lose."


"Prince Charming isn't coming."
Barbara Stanny came from a wealthy family (her father was the "R" of the H&R Block tax preparation chain) and never learned much about handling money. After her first husband lost a good portion of her fortune and left her with a tax bill of more than $1 million, Stanny asked her dad to lend her the money to pay the IRS. He said no.
"That was the best thing he could've done," Stanny said. Though he never said these exact words, the message was loud and clear: 'Prince Charming isn't coming. To truly achieve financial security, your only protection is you.' That moment was the turning point for me. I not only got smart enough to manage my own money (in less time than I ever imagined possible), but I've written three books empowering women to do the same."
Get the latest from Liz Pulliam Weston. Sign up to receive her free weekly newsletter.

"Prince Charmings leave, Prince Charmings die, Prince Charmings aren't always such great money managers," said Stanny, whose books include "Prince Charming Isn't Coming," to be re-released May 2007, "Secrets of Six-Figure Women" and "Overcoming Underearning."
"Your job is to participate in financial decisions from a place of knowledge, not fear, ignorance or habit." This advice isn't just for women, by the way. Anyone who's expecting a lottery ticket, stock picker or other outside force to bail them out is guilty of the Prince Charming syndrome. It's time to quit dreaming and start taking charge.


Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money.
Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.