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Once you are deep in debt, it may feel like there is no way out. Even as you make payments, you might not be seeing your total balance go down, and bankruptcy can have a large negative impact on your credit. There is another option — forming an agreement with your creditors to reduce what you owe.

There are countless services out there that offer immediate help while lowering your principal, but many charge a high premium without guaranteeing results. If you are more than 90 days delinquent, or behind, on payments, your creditors or collection agencies will come after you, but it is possible to resolve this on your own.

Negotiating your own debt settlement can help you dig your way out of trouble. This process involves persuading your creditor(s) to accept a partial balance of the total debt owed. Here are some steps to help you take your debt matters into your own hands.

1. Get Organized

The first thing to do is to take a step back and assess your situation. Make a list of each creditor, the current amount owed, and how far behind on payments you are. Prioritize your bills and recognize which should be paid first, usually those with the highest interest (or the smallest total balance if you are looking for a quick and motivating victory). It’s a good idea to get your credit reports (here how to get free copies every year) and learn to understand your credit report. Once you receive your copy, be sure the information is accurately reported and see if your creditor has turned your account over to a collection agency.

2. Consider the Options

Collectors are trying to get as much of the money you owe them as possible, so they will likely not accept a lower settlement if you are paying your bill as agreed. Typically they will only consider a settlement only if the account is delinquent. But there is no guarantee they will accept a settlement even if you stop paying, and doing so can hurt your credit score. One way to handle this is to call the company and let them know that you will no longer be able to make regular payments. This can encourage the companies to be more open to negotiating.

3. Start Negotiating

Before reaching out to creditor(s), it’s important to have a plan and be completely transparent with yourself about what is reasonable. Figure out what percentage of the debts you are able to pay and the maximum payments you can afford. This can be done in a lump-sum payment or on a monthly basis.

Remember that other expenses will continue so it’s a good idea to prepare three offers and ensure that none of them compromises your well-being. When negotiating, start with your lowest offer (25% or 30% of the balance). Even though this is likely to be rejected immediately, this is a common baseline and sets the tone for where you are in terms of payment ability.

Maintain a calm, honest and clear tone while communicating with creditor(s), and keep in mind that they do not have to negotiate with you. If they are reluctant to settle, explain why this negotiation is in their best interest — that receiving some of the money is better than none of it. It’s not uncommon for collectors settle for between 40% and 60% of the original debt.

4. Finalize Terms & Start Payment

Once the agreement is settled, be sure to receive a written copy of the terms. Don’t pay them until they send you this agreement. Don’t give creditors your bank account or credit card information — it’s often best to pay off these debts using money orders or cashier’s checks. Here’s advice about the best ways to pay debt collectors. It is important to know your rights when you reach this final stage. The Federal Trade Commission, the National Consumer Law Center or your local government offices can provide information on what debt collectors can and cannot do. Review the Fair Debt Collection Practices Act and keep in mind that these payments are now on your terms and you should stick to them.

5. Keep Track

Maintain written records of all communication and payments with your creditors with dates and details. Be sure to keep excellent track and check your credit report so you know the debt is being reported properly. Follow up with your creditors and accounts to ensure the process is going smoothly.

Keep in mind that if you do wipe out $600 or more in debt with a creditor or collector, they may send you a 1099-c form reporting the amount you negotiated away as cancellation of indebtedness income. Here’s why canceled debt counts as income. You may be able to avoid including this amount in your taxable income if you are insolvent by IRS standards. Carefully review IRS Publication 4681 so you understand how this works, and then complete the insolvency worksheet each time you settle a debt. If negotiating lower pay-offs will result in a large tax bill you can’t pay, you may be better off filing for bankruptcy, as debts discharged in bankruptcy are not taxable.

Although settling debt can seem challenging and overwhelming, if you have more debt than you can handle it is important to start as early as possible on the process and gather as much information as you can. Be persistent and make sure the agreed terms are promises you can keep.

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