Drowning in debt and tempted to call one of those companies that promise to settle your debt for pennies on the dollar? You might want to consider do-it-yourself debt settlement instead.

Negotiating down a debt with a creditor, rather than hiring someone else, can save you money and put you in control of the settlement process. However, many consumers shy away from DIY debt settlement, chiefly because they want to avoid interacting with banks, other creditors and collection agencies, experts say.

"They're scared," says Charles Phelan, founder of ZipDebt.com, which provides tools and coaching for consumers settling their own debts. "They've heard debt settlement is brutal."

Tales from the trenches: settling your own debt

Debt settlement isn't for the faint of heart. Doing it yourself requires persistence, hard work and the willingness to deal with debt collectors for months or years.

California filmmaker Kenny Golde was left with $220,000 in business and personal credit card debt after he put up the money to finish a film that went over budget while his main investor was in the hospital. After the movie failed to sell, Golde could barely scrape together the $4,000 a month he owed just in interest.

"I was running out of cash and literally facing bankruptcy," he says.

After meeting with a bankruptcy attorney, Golde decided that settling his debts for less than what he owed would be a better choice for him. He stopped making minimum payments on his credit cards and started banking that money instead.

After about three months of missed payments and many calls from his creditors, he started trying to settle. The first creditor offered to cut just $3,000 off the $75,000 balance. "They'll start high," says Golde. He kept at it and settled that debt many months later for $25,000.

While negotiating down his debts, Golde got multiple daily calls from bill collectors. Some asked how he could stop paying his bills and what his girlfriend would think. He says: "Their goal is to get you emotionally upset so you will write a bigger check sooner."

It took about 18 months and many rounds of negotiations for him to settle all of the debts, for as little as 22 percent of the original balance. In all, he got rid of about $150,000 in debt.

Another consumer, Gayle Moriner, had an easier time, possibly because her debts were years old and collectors likely had given up hope of getting a penny, she says.

A year and a half ago, the Michigan resident decided to do something about her credit, which had been trashed by the $4,000 she owed across six old accounts that had all gone to collections.

Her unpaid cable, cellphone and credit card bills dated back to 2008 when she was hit by a triple whammy: the recession, a lost job as a patient care technician and her dad's cancer diagnosis.

By the time she decided to try to settle her debts, Moriner had a new job, had built up a small savings account and was tired of cringing every time a Macy's clerk asked if she wanted to apply for a card. "I decided, 'I can't keep living like this,'" she says.

Moriner scoured the Internet, read credit card forums and communicated with other consumers who had settled debts on their own. She drafted a simple letter that said she had run into financial difficulty, that her situation had improved and she wanted to settle her debts. She offered partial payment of each debt if the collection agencies would remove the delinquent payments and collections from her credit report. She asked each agency to sign and mail back the offer.

"I did everything by letter so I would have a paper trail," she says. She was able to settle most of the accounts and clean up her credit within about a month, paying about $700.

She says she'd tell other consumers, "Don't be afraid to confront your debt."

Is DIY debt settlement for you?

The first question should be whether debt settlement is the best option for you, says Jared Strauss, a former debt collector who offers debt settlement services. To answer that question, you need to look at your total financial picture and alternatives such as bankruptcy or a family loan, he says, noting that debt settlement typically will severely damage your credit.

"Credit is important, and if you can solve your problem without destroying yours, you'll be better off," Strauss says.

Debt settlement can damage your credit severely when creditors and collection agencies report delinquent payments, collections and settlements for less than the full amounts owed on accounts. "It can destroy your credit," Strauss says. Even if you make a deal with a collection agency or junk debt buyer to delete the collection from your account as part of the settlement, the negative information reported by the original creditor likely will remain on your file, Strauss says.

There is a small silver lining. Taking your outstanding balances down to zero as part of the settlement process might help mitigate the credit damage because 30 percent of your FICO score is determined by how much you owe, Strauss says. And, since many lenders won't extend credit to consumers who have outstanding delinquencies, settling can put consumers in a position to start rebuilding credit, he says.

If you decide to try to settle, you'll need to decide whether to do it yourself. Experts say the advantages of DIY debt settlement include:

  • You save money. Many debt collection companies charge as much as 25 percent of what you owe or as much as 40 percent of what you save by settling, Strauss says. That can add up: if you owe $50,000 for example, you could pay $10,000 or more in fees. 
  • Creditors might go easier on you. Collectors who know they're dealing with a debt settlement company might get more aggressive -- and may even be more likely to sue. Why? Because they know they're competing with other creditors and that they might not see any money for a long time because many debt settlement companies put consumers on three- or four-year plans, Strauss says. But if you're on your own, "you're just a normal Joe Schmo account to the collector," Strauss says.
  • It might motivate you to get your finances in order. Settling your own debts can provide a good lesson for consumers who are in debt because they made financial mistakes, says Sandee Ferman, author of "How to Settle Debts Yourself," who used to run a debt collection company. "You actually face up to it and you deal with it on your own," she says. However, it might be too much for someone whose financial problems stem from tragedy, such as loss of a loved one or medical problems, and who is already overburdened, she says. 

"It's not for everybody," Ferman says. "That's why some people hire companies -- because they can't face talking to collectors."

8 steps to settle debts like a pro
Debt settlement experts and consumers who have been there say your approach can make a big difference in whether you succeed at settlement. Here are eight tips to increase your chances:

  • Get expert advice. Before you take the plunge, consult a tax accountant about the tax implications of settlement, experts say. The Internal Revenue Service counts debt written off in a settlement as income. "The last thing you want to do is transfer your credit card problems to the IRS," Strauss says.
  • Plan your timeline. It's important to settle your debts quickly to increase your chance of success and cut your risk of being sued, Strauss says. "Twelve months or less is ideal, and I'd never go beyond 24 months," he says. It's essential to take a realistic look at your finances and assets to see how quickly you could come up with the money to make lump sum payments totaling 30 percent or 40 percent of your debts, he says. You should also figure that your balance will go up about 10 percent within the first six months of delinquency due to interest and penalties, Strauss says. 
  • Know the typical collection cycle. With credit card debt, an account might charge off when it's 180 days past due, Strauss says. At that point, the account typically would be sent to the recovery department of the bank, and you could start negotiating a settlement, he says. After a month or two, it might be sent to a collection agency. After about six months, a collection agency might consider sending the debt to a collection attorney, Strauss says.
  • Find sources of money. Finding assets or other ways to come up with cash, aside from just saving, will increase your chances of success, Strauss says. "Do you have an extra car you're not using, or is that Harley-Davidson sitting in the garage 100 percent necessary?" Strauss says. Other assets to look at include collectibles such as baseball cards, coins and antiques. Or you could consider refinancing a mortgage, getting a loan from family or taking on a second job he says. 
  • Take the emotion out. "Treat debt settlement like a business," says Golde, who created an Apple store app called "Do-It-Yourself Debt Settlement." Consumers tend to feel guilt, shame and fear about debt they can't manage, he says. "Banks will take advantage of that." For them, it's just a numbers game. They're in the business of lending money and a certain percentage of borrowers will default, Golde says.
  • Set up a system to manage calls. The average consumer settling debts has about six accounts, Strauss says. Multiply that by several calls a day -- especially if the collection agency is like most and uses a predictive dialer (hardware or software that increases call answer rates). "It's crazy," he says. He recommends using technology to counterattack: Assign the collectors a silent ring tone on your cellphone to manage calls. Phelan recommends getting collections calls routed to another phone -- a magicJack, a second cellphone or even Skype. Then, Phelan says, listen to the messages daily and return calls on your own schedule. 
  • Explain your hardship. "You've got to have a hardship," says Ferman. "A hardship is not, 'I'm not interested in paying for this big screen TV I just got.' It's you lost your job, lost your spouse, a tornado struck." It's a good idea to detail your situation so debt collectors can understand just how underwater you are, says Strauss, who has advice on how to talk to debt collectors on his site. The amount of evidence you need to provide will vary based on the type of debt you're trying to settle, experts say. For a credit card, you won't need to provide as much detail, but for a second mortgage, you might need to provide copies of bills and tax documents, Ferman says.
  • Get it in writing. Even if you reach an agreement with an original creditor or a collection agency over the phone, you should always get the agreement in black and white before you pay a penny, Phelan says. If you fail to do so, the payment you thought would take care of your entire debt could be counted as just a partial payment. "We're talking about debt collectors -- they'll say anything to get you to pay," Phelan says.
  • See related: Bankruptcy's credit damage worse than debt settlement's, Credit card video: The basics of debt settlement