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 is that while bill collectors are full of bluster, they lack real legal muscle.

What does this mean for you? It means 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.

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.

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, like rent and food, 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.

Keep Records of Each Interaction
Note the date and the details of every phone call. 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. Know going in what each side can expect from the partnership.

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. 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 to know your rights. The more informed you are, the better you and your money will be protected. Contact the Federal Trade Commission, the NationalConsumerLaw 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.

The Bottom Line
Whatever you do, take action! The long-term ramifications of unpaid debt are staggering. According to a report by, 1.3% of US households filed for bankruptcy in 2011. Thankfully, with a little planning and a lot of education, your financial future should be significantly brighter.