You may find yourself saddled with credit card debts or medical bills you can't get out from under.  When a debt collection agency comes calling, they'll pull out all the scare tactics they have to in order to put you on the defensive—and make you to pay up, no matter what your financial hardship.  The truth is, debt and bill collectors often possess more bluster than actual legal muscle.

Whether you negotiate your debt for yourself, or opt to hire a professional debt negotiator (also known as an arbitrator), there are more options than you might think to survive this experience without sacrificing your financial future.  While you need to make payments towards your debt, it doesn't have to ruin your personal finances even more.  Even if you have a lot of debt, 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 here, and use it wisely in paying off your debt.

Steps to Take in Negotiating a Debt Settlement:

Prioritize your bills.  No matter what a debt collector insists, that unpaid credit card bill is probably not your number one financial priority this month. Always consider the fundamentals, the bills or financial obligations you have to pay—rent or mortgage, feeding yourself and your kids—before you start handing money over to settle your debt. 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 with your creditors.  Note down the date and the details of every phone call with creditors (and in general, avoid these in favor of written communication). Copy and save any letters you receive or send out, and when you've come to a debt payment agreement, be sure to outline it on paper, and sign it, and save copies, just like a contract or formal agreement.  Never send money to eliminate your debt until you have a written agreement in hand.

Drive a hard bargain.  Estimate how much you can actually afford to pay towards your debt, 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 in regards to your debt, on top of threatening letters.  No matter what a debt collector says, keep cool and stay focused on the debt negotiation. The more in control you appear, the more likely you are to achieve your desired outcome.

Also, negotiate with debt collectors 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. 

When you bargain with a debt collector, you're going head-to-head with a tough, professional negotiator. Be prepared to stand firm, or ask for help if you need it, but don't let yourself be bullied.