A debt collector is calling and you finally have a little money to offer.

Before you pay a cent, try negotiating a better deal. By offering a lump-sum payment, you could easily cut your debt in half.

Can’t swing a big payout? Insist on a monthly payment that won’t strain your budget or take money away from more vital expenses such as food, utilities and rent.

“If you can pay off your debt, you should,” says John LeBlanc of the Canadian Financial Wellness Group, in Dartmouth, N.S., which empowers consumers to deal with financial stress and debt management.

“But paying a debt in full may put you at more risk, so don’t do it if you can’t afford it.”

So, bargain with collectors-don’t let them convince you their debt is your most important priority.

Exert power

Believe it or not, you do have some leverage here. Debt collectors want your money because they’re paid a commission on however much they collect. And they don’t get a cent until you give it to them.

“The first call will always be the hit for payment in full,” explains LeBlanc. “It’s meant to create a sense of urgency. Seventy to 80 percent of people are enticed by collectors out of fear and don’t realize the consequences.”

But if you hold firm, LeBlanc says collectors eager to earn their keep will move quickly down the payment hierarchy.

Although payment in full is at the top of the hierarchy, if you make it clear that isn’t a possibility, they’ll move down to lump-sum payments and smaller monthly payments until they find some common ground.

Step one in negotiating with a debt collector is to know your rights. Debt collectors will say all kinds of things to upset you and pressure you into agreeing to payment terms you can’t afford. Don’t be intimidated-you have the law on your side.

Each province and territory has legislation to protect consumers from harassing or abusive debt collectors. While they differ somewhat from place to place, the basics are the same.

There’s a long list of rules third-party debt collectors must follow when collecting a debt.

“They must write to you first, they can’t call you out of the blue,” says lawyer Stanley J. Kershman, author of “Put Your Debt on a Diet: A Step-by-Step Guide to Financial Fitness” and head of the bankruptcy and restructuring group at Perley-Roberston, Hill & McDougall in Ottawa.

“They can’t swear at you, and they can’t threaten you with violence, repossession or jail time. They also can’t be harassing in tone or in calling frequency,” says Kershman.

In most places, Kershman says collectors must make their calls between 7 a.m. and 9 p.m., and can’t make calls on Sunday or on statutory holidays.

Nor can they call your boss except to verify your employment and wage. And the only time they can call friends or family (unless they were co-signers or guarantors of the debt in question) is to verify your address and phone number.

While some collectors will threaten you with legal action, Kershman says this is unlikely. Third-party collectors need permission from your creditor to undertake any legal action. And given the expenses involved, it’s not something creditors are often willing to do, despite what a collector might tell you.

For a summary of provincial or territorial debt collection rules where you live, check out the Canadian Consumer Information Gateway, and do a search on “debt collectors,” which will bring up links to the appropriate legislation across the country. Or, contact your ministry of consumer affairs.

Glean fact from fiction

“You have to know what’s the truth and what’s not the truth so they don’t frighten you into a settlement you can’t afford,” says John Ventura, author of the e-book “Stop Debt Collectors Cold.”

For example, even if a debt collector could garnish your wages, first they would need to get a judgment against you in court.

“Debt collectors will say, ‘If you don’t pay this tomorrow, it will come out of next Friday’s pay cheque,'” says Gerri Detweiler, author of The Ultimate Credit Handbook. “They can’t do that. But they say it.”

Once you know the absolute worst that can happen to you if you fail to pay a debt collector, it’s time to take a close look at your finances.

How much can you realistically afford to pay toward an overdue debt? Providing necessities for your family should be your top priority. All other bills are of lesser importance, regardless of what a creditor or debt collector may say. These 16 rules will help you prioritize your bills and expenses.

Once you know how much money you can afford to give to a debt collector, it’s time to start negotiating.

Offering a single lump sum payment is a great way to go. Debt collectors want your money as soon as possible, and they may be willing to settle your debt for a whole lot less if you agree to one big payment.

“Collectors are driven by commission. They won’t keep their jobs if they don’t make money, so they’ll farm offers out to save money,” says LeBlanc. “It’s a common approach [to settle for less] because it’s easier to get it and move on.”

Some debt collectors will offer to settle if you pay 40 to 60 percent of the amount due. LeBlanc says large creditors, such as banks, will often give collectors blanket permission to settle accounts, while others require collectors to request authorization for each deal they want to make.

At some of the big banks, for example, LeBlanc says collectors would have permission to settle for 65 percent of the principal and interest owing on debts less than $5,000. More expensive debts would have to be settled for no less than 80 to 85 percent.

Before you agree, try negotiating a better deal. Start by offering an amount well below the amount you can afford. Many debt collectors have paid pennies on the dollar for old debts. They’ll make a profit on just about any payment you send them, no matter how small.

Always start by offering less than you can afford. And then sit tight.

“Say 30 cents on the dollar. And they’ll say 75 cents on the dollar,” Detweiler says. “Just wait.”

Use the power of silence. Don’t say anything except maybe “hmm.”

“Let them budge, not you,” Detweiler says.

For more negotiation tips, check out this sidebar.

Once you and the debt collector agree on a payment amount, you’ll want to get it in writing.

If you expect a debt collector to hash out a new payment agreement in writing, you could be waiting a while. And there’s another risk — a debt collector could change the terms on you.

So, Kershman suggests keeping detailed, dated records of all your conversations and verbal agreements with a collector. Then, write up the agreement and get them to agree to it.

Stipulate the terms

Send a letter to the debt collector outlining the payment agreement. You’ll want to send it via registered mail or Xpresspost so you’ll have a record of confirmation the letter has been received.

In the letter, explain that the collector has agreed to accept the negotiated settlement amount as payment in full for your debt. Keep a copy of the letter for your records.

If you plan to pay by cheque, add the following disclaimer: “Cashing this cheque constitutes payment in full.” Write this disclaimer right on the cheque.

You’ll want to emphasize this point in your cover letter as well. Make it clear that if the enclosed cheque is cashed, it means a debt collector has accepted your payment offer and the debt is considered paid in full.

You may even want to hold off paying until you receive a written confirmation back from the debt collector acknowledging your payment agreement.

Take copious notes

Whether you send your payment with your letter or you wait, make sure you have a copy of the payment agreement. You’ll also want to keep notes of the phone conversation in which you negotiated the settlement. Make note of the day and time of the call, the name of the collector that called and what was said.

The more proof you have, the better. You may need it.

Some consumers get hassled with collection calls on debts they’ve already settled.

Let’s say you pay $1,000 to settle a $2,000 debt. Another debt collection company may call you demanding the remaining $1,000. If you’ve kept good records, you have proof the debt is paid in full.

According to most of the laws about third-party debt collection in Canada, a collector must send you a written notice telling you the amount of money you owe, the name of the creditor to whom you owe the money, and what action to take if you believe you do not owe the money.

Once you receive this notice, you have 30 days to respond. Kershman says if you send written proof that you’ve paid the debt, or that the debt in question is not yours or the statute of limitations has passed on your debt, a collector may not contact you again.

Firing off a copy of your payment agreement with your old debt collector to a new collector should halt collection calls. If it doesn’t, you may want to contact a lawyer.

To find a bankruptcy lawyer near you, visit the Canadian Bar Association, or log on to the CanLaw Web site and search for an attorney with expertise in debt collection in your area.

Get it in writing

Having written proof is paramount when settling a debt with a debt collector. And you’ll want to be just as diligent with your records when agreeing to a monthly payment plan to pay off an old debt.

With a payment plan, you’ll make several smaller payments rather than one big one. But by agreeing to a payment plan, you may wind up paying closer to the full amount of your debt.

If you opt to settle a debt by payment plan, be sure to send a letter to the debt collector outlining the payment schedule in detail. Send this letter via registered mail and be sure to keep a copy for your records.

Whether you send the first payment with the letter or wait until you receive written confirmation of the payment schedule from the collection agency is up to you.

Don’t send your cheque

Whatever you do, don’t let a debt collector talk you into paying with postdated cheques or making automatic, electronic withdrawals from your chequing account.

You never want to give a debt collector your bank account number, as there have been cases of unscrupulous bill collectors going into the account and draining it, which is illegal.

If you’re worried about sending a personal cheque to a debt collector, you may want to pay by money order instead. Just be sure to keep records of your payment and your payment agreement.

“The bottom line is collectors can’t refuse your payment in any form,” says LeBlanc. “They aren’t supposed to be incurring any costs, so regular mail is the only thing they should be using.”

So if you feel most comfortable sending them money orders, don’t let them fool you into saying you can’t.

Ask for a clean slate: Here’s one last thing to consider when negotiating with a debt collector — your credit report.

Although a third-party collection agency can’t make any changes to your credit report, you can ask your creditor to make notes on your report once they’ve received confirmation from the collector that your debt is paid.

“A collection item will stay on a credit file for a period of six years. Of course, if the account is paid in full, it will be so noted on the file,” says Marie-Line Colangelo, a spokeswoman for Equifax Canada, one of the country’s two main credit bureaus.

Creditors are unlikely to remove your negative rating once it’s on your report, but most will mark that your account has been paid. It won’t fix your credit rating problems instantly, but it’s a good first step in cleaning up your credit history.

That’s why LeBlanc says if you can afford to pay off your whole debt, you should.

“Otherwise, if you make a settlement, it shows as a balance outstanding on your credit report, and will make any new creditors question it for six years.”

If the thought of negotiating with a debt collector makes you queasy, you may want to get some help.

If you aren’t a seasoned negotiator and the thought of haggling over the price of a new car makes you feel ill, don’t even start trying to negotiate with a debt collector.

Instead, enlist the help of a credit counsellor. For tips on finding a good credit counsellor, check out this Bankrate.com article.

Bruce Gillespie, a freelance writer and editor in Simcoe, Ont., contributed to this report