It's a common scenario in the debt-collection world:you find yourself saddled with credit card debts or medical bills you can't get out from under. When a debt-collection agency comes calling, it will pull out all the scare tactics needed to put you on the defensive - and make you to pay up, no matter what your hardship. The truth, however, is that while bill collectors are full of bluster, they lack real legal muscle.

What does this mean for you? Options. Whether you negotiate for yourself or opt to hire a professional debt negotiator, there are more options than you might think for surviving this experience without sacrificing your financial future. Even if you owe a lot, a creditor will almost always settle for something over nothing when it comes to payment of outstanding debt. So take your time, recognize that you do have some power, and use it wisely. (Learn how to use debt wisely in Define Your Personal Debt Redline to help avoid getting in over your head.)

Negotiating With Collectors
Negotiating your own debt settlement is a viable option for many people. Here are some tips to consider for dealing with creditors. (Read Seven Tips For The Do-It-Yourself Debt Manager for more information.)

Prioritize your bills. No matter what a debt collector insists, that unpaid credit card bill is probably not your No.1 priority this month. Always consider the fundamentals - rent or mortgage, feeding yourself and your kids - before you start handing money over. There's no point trying to appease one creditor if it means putting yourself in the bad graces of others, or jeopardizing your ability to keep earning more. (Learn how to get a grip on credit card debt in A Lifeline For Those Drowning In Debt and Expert Tips For Cutting Credit Card Debt.)

Keep records of each interaction. Note the date and the details of every phone call (and in general, avoid the phone in favor of written communication). Copy and save any letters you receive or send out and, when you've come to a payment agreement, be sure to outline it on paper, sign it and save copies, just like a contract or formal agreement. Never send money until you have a written agreement in hand.

Drive a hard bargain.Estimate how much you can actually afford to pay, and offer less (a relatively common baseline is 25% of your actual debt, though this does vary). Don't be surprised to get angry or outright rude phone calls and threatening letters. No matter what a debt collector says, keep cool and stay focused on the negotiation. The more in control you appear, the more likely you are to achieve your desired outcome.

Hiring a Debt Negotiator
If confronting your lender isn't your style, you might want to hire a debt negotiator; just know going in what each side can expect from the partnership. (A credit counselor can also help you manage your debt. Read How To Find A Credit Counselor for more information.)

Make your selection carefully.  Be cautious, especially of those telephone calls or emails that arrive out of the blue from debt negotiators offering their services. Reputable credit and debt professionals usually rely on past clients for referrals, so they don't need to solicit your business through television, telemarketing or spam emails. Interview several agencies before making a choice, and don't be afraid to ask around for recommendations. Also, ask for a clear presentation - in writing - of the fees you will be charged and what they're based on. As a rule of thumb, debt negotiators are paid on commission - if they save you 40% on an overdue bill, they may charge anywhere from 10- 20% of your total debt. Monthly fees vary according to state law, which the agency should be able to explain. Ask yourself this question: When you add up the fees, does an agency make sense for you, or will it merely add to existing debts? 

Protect yourself.  For real protection against potentially unscrupulous debt negotiators, contact your state attorney general's website or your local Better Business Bureau. Each can provide useful data on debt negotiators, especially if there are any consumer complaints against such firms. Also, check with your attorney general's office to determine whether your debt negotiator is required to have a professional license to operate in your state. While state laws on debt negotiators vary, most have statutes against debt negotiation firms that stick you with high fees but don't follow through, that fudge the terms of a debt settlement plan, that don't explain certain costs or that tell you that you've signed over your home or car as collateral for one of your debts.

Enforce Your Rights
Overall, the key is toknow your rights - the more informed you are, the better you and your money will be protected. Contact the Federal Trade Commission, the National Consumer Law Center and/or your state's attorney general for free information on what both debt collectors and debt negotiators, if you choose to use one, can (and can't) do in your area and situation. 

Also, don't be rushed. Never act too eager to settle, never accept a first or second settlement offer and, most importantly, never let the debt collection agency think that it has the upper hand. It will push for instant payments, but don't send anything until you have an agreement in writing. 

Here's one last-minute tip - negotiate at the end of the month. Because debt collectors' commissions are based on their totals at the end of each month, you may be able to talk them into a good deal when it's close to deadline time. 

Conclusion
Whatever you do, take action! The long-term ramifications of unpaid debt are staggering. According to the National Bankruptcy Research Center, 1 in every 59 U.S. households filed for bankruptcy in 2007. Thankfully, with a little planning and a lot of education, your financial future should be significantly brighter.

Debt consolidation can help many find their way out of consumer debt. Read Digging Out Of Personal Debt and Debt Consolidation Made Easy to find out more.

by Brian O'Connell, (Contact Author | Biography)

Brian O'Connell is a Bucks County, Pa., freelance writer and author. He has authored 15 books and has bylines in major national publications including The Wall Street Journal, Forbes, Cigar, Newsweek, Men's Health, CBS Sportsline, Entrepreneur, and many others. He is also the co-founder of the Writers Corner USA, in Doylestown, Pa. His personal web site is: www.brianoc.com.