Some people have expressed skepticism that you can actually negotiate with collectors using creative methods of reducing debts. If a debt is with a collection agency, the original creditor is not going to deal with you. The original creditor has collected its tax benefits under US tax law for bad debts, and "cut the ties" with the debt. You are now dealing with the collection agency.

Many consumers are unaware of their risks with unpaid debts. Yes, it is true that a creditor could sue you in court and win a judgment, allowing the creditor to garnish your wages or hire a sheriff to come get your property. However, the chances of this are small. It is simply too much time and expense for them to take action against you. We do not want to lie to you, the possibility does exist, but the chances are small. And if they do take you to court, often they have no case. There are an incredible amount of new players out there, the junk debt buyers. These guys buy and sell debts and place them into million dollar packages which sell on Wall Street, much like the secondary mortgage market.

If you are contacted by more than one collection agency for the same debt, it means that the original creditor has hired a secondary or even tertiary collection agency. This indicates that the original creditor and even the first collection agency has given up on you. This means that the second collection agency has paid even less for the debt than the first one. If the agency has not been able to reach you by phone but knows that you are receiving its letters, it may be willing to take even less.

Too many consumers feel that their debts are overwhelming and there is nothing they can do other than file a bankruptcy. Consumers believe those awful tales spun by collection agencies of impending doom, especially about garnishment and seizure of property. Collection agents fail to mention that in order for these actions to take place, the creditor must first go to court. So, due to lack of information, many consumers turn prematurely to bankruptcy. Bankruptcy should not be used until after all options are exhausted.

There are two basic categories of debt, for the purpose of this article: secured and unsecured.

Unsecured debts include:

• medical bills

• credit cards

• department store cards

• personal loans

• student loans

• bounced checks

Secured debts include:

• home

• auto

With a secured debt, a piece of real property (such as an automobile or a home) is promised if the debtor can not finish making payments, or defaults, on the loan. You will not be able to settle these debts, as the creditor will simply accept the promised property as the "settlement." As a matter of fact, with a home or auto loan, you most likely won't be reading this information - your property will have bee just repossessed.

With unsecured debts, there is nothing "attached" to the loan promised as repayment. Unsecured loans are typically given to people with good credit, due solely to the fact that they have good credit. These are the type of debts that a creditor is willing to settle, as they have no way to guarantee they will receive anything from you.