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I've talked to people who didn't believe that the credit card companies would actually settle for less than they were owed. But the fact is that if you haven't paid your bill in a few months, it is likely that they will offer you a settlement without you doing anything.

If your debt is no longer with the original creditor, and has been sent to a collection agency, you will have to deal with them. I have actually gotten better deals from some collection agencies than from the original creditor.

There is no need to panic about the first collection notice you receive. I don't wan to imply that there are no consequences, but the process is fairly slow. The collection agency wants you to pay. They have no interest in you declaring bankruptcy. If that happens, nobody wins.

If they win a judgment in court, they can levy your wages, or hire the sheriff to get your property. This is unlikely. I don't want to say it wont happen, because it can. Usually, the expense is to great and they are more likely to sell the debt on the open market to another collector who will again try to collect. These companies buy old debt on the secondary market where debt is traded much like secondary mortgages.

When debt becomes overwhelming, and the word "bankruptcy" starts going through your mind, don't let it get to you. Collection agencies love to tell tall tales of gloom, about taking your pay check or your property. What they sometimes don't tell you (unlawfully) is that they can do none of these things until after they get a judgment against you in court.

Since most consumers don't know this, they turn unnecessarily to bankruptcy. Bankruptcy may become an option at some point, but there are plenty of other choices for dealing with debt before it gets to that.

Make sure you have taken advantage of all of the other options available to you for settling your debt before you go through the financial ruin of a bankruptcy.

The first step in the settlement process is to try "debt validation". Don t attempt to settle a debt until you have checked the statute of limitations.

If the debt is older than the statute of limitations, then the collector is wasting their time and yours. Usually after 7 years negative marks will disappear from your credit report.

We do need to be clear about something. The creditor can still go to court and get a judgment even after the past due debt no longer shows on your credit report. If it has been over 7 years, and the debt has been removed from your credit bureau report but the statute of limitations is 10 years - you are still liable for the debt!

If however, the debt is off of your credit report, and the statute of limitations has passed, it can no longer be collected. You don't have to worry about it any more.

If you know that the statute of limitations has not passed, then validation is a waste of time. You can move immediately to making arrangements to settle the debt.

The collection agency is assigned the debt by the original creditor. Their job is to use any legal means to get you to pay. These may be companies who have purchased the debt, sometimes called junk debt buyers. They may also be attorneys who attempt to collect either by calling, or sending you a letter.

Don't panic just because you receive a letter from an attorney. They have to go through the same court process as any other collector before they can do any type of enforced collection.

Some debts are easier to settle than others.

Unsecured debts include things like store cards, gas cards, medical bills, master card, visa, amex, etc. These are generally pretty easy to settle.

You cannot settle secured debts! You have promised an actual asset as security for the loan. If you default, or cannot make your payments, you have already promised to give back the property. Repossession is used for personal property such as automobiles, and foreclosure is used for real property.

You can get a creditor to make a good deal. In the negotiation, you have the advantage. You have what the creditor wants. They will drive a hard bargain. They will tell you no. Stand firm, and make a good deal. Be professional, be courteous. Let them know that you know what your rights are, and what they can and cannot do.

Correspond with them by mail. You will want to have ALL they paperwork so you can validate your efforts. This means saving not only the letter, but the envelopes with the postmark. When you send mail to them, send it certified mail with a return receipt.

One rule is, if it wasn't written, it wasn't done. If I were to ask you to prove that you sent a particular piece of mail to the creditor, you you be able to produce proof? They agency will almost always take substantially less than what is owed.

How much should you offer? They amount that companies receive for old debt is quite literally a few cents per dollar. The amounts that they pay depend on the age of the debt.

If the debt has been charged off recently, the company may have paid only six or seven cents on the dollar. If the debt has been cycled through a couple of different agencies in an attempt to collect, they may have paid less than 2 or 3 cents on the dollar. If the account is several years old, and is out of statute, they are basically worthless, and may have been sold for one cent or less.

Knowing this, start your offer at 25% or less. If you have an old credit card balance of $1000.00, the collection agency has probably paid at the most $70.00 for the debt (seven cents on the dollar). If you only offer them $250.00, they still make a profit of $180.00. The original creditor gets nothing because they have already sold the debt. So this money is all profit to the collections.

Remember the rule - if it wasn't written, it wasn't done. Keeping this in mind, never, and I mean NEVER, talk to a collection agency on the phone.

Make sure you have all terms in writing before you send anyone any money. A creditor will almost never live up to a verbal agreement. You need to have written documentation of all agreements, and even then you can expect a fight. Good records make or break a settlement.

Keep a copy of every letter you send. Its important to remember that you may not only need to verify what they collector told you, but also what you sent to them.

If you do call a collection agency, my first question is WHY? My second question is are you keeping a log book of the calls, the time, the date, and first and last name of the person you spoke to, their employee number if they have one, and a general record of the topic discussed including any promises made. You can also go to Radio Shack and by a telephone recorder. Keep in mind it is illegal to record a conversation without notifying the other party that the call is being recorded. But when they tell you that "the call is being recorded for quality assurance" it is kind of fun to tell them thats OK, because you are recording them also.

Make sure you know the amount of the debt. Agencies will sometimes add charges that don't actually exist to a debt, basically because they just want to make more money. I understand the motivation to make more money, but this practice is illegal. If your original debt was $2000.00 and its less than 5 years old and has somehow become $10,000, then you know there is some serious padding going on. Most companies will waive the fees.

You generally have a lot of time. As the debt gets older, the daily calls will stop, and as the debt remains uncollected your chances for a good settlement increase. Just because the debt has become inactive from a collection standpoint, doesn't mean that they won't try other means to collect. Don't think that they have forgotten about it. They may consider the debt to be a loss and take the tax write off, or may forget about it for a few months and then pursue a judgment.

Don't be in a hurry to settle. Take lots of time to reach an agreement. If your trying to settle the debt for a specific reason, its none of their business. Don't be "friendly". Be polite and professional. But no matter how nice these people seem, they are not your friends, they are not there to help you, they are there for one reason - to collect the debt. And anything you say will be used for that purpose.

If you tell them that you need to settle so you can buy a new car, you can basically forget a decent settlement.

Let them deal. Don't accept the first offer they make.

Sometimes you will be contacted by a second collection agency attempting to collect the same debt, at the same time. Negotiate with both, and take the best deal.

You should use the threat of bankruptcy. It is in your best interest to let the collector think that you have no money, and that you are on the precipice of bankruptcy. Make the collector think that this is their last chance to make an arrangement for payment.

Thats its for today. Thats a lot of information. Over the last three days we have covered what a collector can do, what they cant, and some strategies for negotiating your debts and paying a lower about. Negotiating your debt can save you literally thousands of dollars.

I constantly stress that while you can certainly settle your debt on your own, it is sometimes best to get a professional to handle a this for you. You know your situation and your comfort level. Whatever you choose to do, get started today. And begin living a debt free life.