If you've taken on more debt than you can handle, don't be discouraged. You're not alone. Thousands of Americans are in the same boat, with many of them carrying huge debt loads. It doesn't matter how much money you make. If you can't live within your means, you become a slave to your creditors.

Credit card fraud happens every day. It is amazingly easy to open a credit card in someone else's name. Think it can't happen to you?? All the information needed to open an account in your name is floating around on the internet right now! Before I relate this reader's story, I URGE you to pull your credit report if you haven't done so in the last 6 months.

Many people think that being debt-free is a positive trait valued by lenders. Nothing could be further from the truth. A borrower with no credit is almost as bad as one with bad credit. A creditor wants to see a history of how you handle debts. A person just out of a bankruptcy needs to show potential lenders that they have learned their lesson and are now committed to improving their credit habits.

Gas cards and department store cards are a good way to rebuild your credit if you are just starting out, but can be tough to get if your credit is already trashed. Also, these cards do not help your credit as much as a major credit card. Major credit cards are scored higher than "finance cards" (usually a credit card which can only be used at the store who issues it, like Best Buy, Texaco cards, etc.) So how do you get a major credit card if your credit is trashed? Secured credit cards.

Some people have expressed skepticism that you can actually negotiate with creditors using our strategy or other creative methods of reducing debts. Read letters from readers who were highly successful.

You could try to use debt settlement methods with a collection agency, but you might want to try debt validation first. Why? Because they may not even be legally entitled to collect the debt from you.

Points to remember: Collection agencies. Always insist on complete removal of a listing from a collection agency. I mean really, who cares if you have a "Paid As Agreed" collection account: no matter what the rating, every collection account is a negative mark. It's no skin off their nose to change it, and of no use to your credit. If you do pay the collection agency, you can contact the original creditor and tell them the debt was "settled" and they need to update your account to reflect this. Technically, they are obligated to do this, as this is the truth. For the creditor to NOT do this is a violation of the FCRA. Don't do this, though, if you plan on disputing the whole listing later, though, through the Method of Verification. In some cases, you can get the collection agency to change your listing with the original creditor. I wouldn't count on it, though. Some collection agencies will tell you they have no power over what the original creditor will do regarding your credit. To some extent, this is true. However, both the collection agency and the creditor want their money. If collection agency gets paid, so does the creditor, therefore it is to their advantage to cooperate. Remember, though, not all collections result from credit cards. Doctor's bills cannot appear on your report. But collections resulting from these accounts can. In the case of such collections, there is no duplicate negative listing, since the original creditor is not allowed to put a listing on your account, so this collection may legally remain on your report.

Tips on Paying Never disclose where you work or bank. If you are asked, simply say "no comment". The reason for this: If your settlement falls through, and the creditor gets a judgment against you, knowing where you bank or work will make it easy to collect the judgement. Never pay your settlements with a personal check How you make payments is very important, as it protects you from other creditors learning about your financial status and bank account numbers. For this reason, never send a personal check. Get a cashier's check or money order. Make sure you get the money order or cashier's check from a different bank than your own bank or the post office. Make sure you keep a copy of your money order or cashier's check and put it in a safe place! Collection agencies keep notoriously bad records and it's your word against theirs if you say you paid and they said you didn't...unless you have the copy of the money order or cashier's check. I negotiated a settlement with a creditor for less than I owed. The creditor is now suing me for the balance. Is this legal?

Unfortunately, the answer is no. If you are unable to negotiate the way the account will appear on your credit report, what will happen is that the debt will appear on your credit report as "Paid", or "Paid Collection". This will help your credit score only marginally, but having this collection paid is definitely better than unpaid. So why would someone want to pay off a debt, then?

If your credit problems have progressed to the point where your creditors have turned your case over to collection agencies, it is important to know your legal rights.