Life's tough enough when layoffs, divorces, injuries or illnesses saddle you with bills that just can't be paid. It only gets worse when the collection agencies start calling.

But you don't have to start dreading the ring of the phone. Or let them beat you down until you feel like America's most wanted criminal. Yes, you owe money and repaying your debt is serious business. But the collectors treat their job as a game and you'll fare much better if you do so, too.

Just follow our 10 steps for dealing with debt collectors:

Step 1. Respond immediately.

Don't ignore a debt collector, even if you don't think the debt is yours. The agency isn't going to stop calling, and if you don't respond they may sue to obtain a judgment against you. The result can cost you a lot more time and trouble in the long run.

Step 2. Know your rights.

You may owe money, but you're still entitled to fair treatment and respect for your privacy. The federal Fair Debt Collection Practices Act put strict limits on how much harassment you have to put up with and "10 Things Debt Collectors Can't Do" will explain them.

The only downside is that these restrictions only apply to independent collection agencies, not in-house billing departments at banks or hospitals.

Step 3. Get the facts.

By law, any collector must tell you his real name and the name of the agency he works for. If you have not yet received a letter from the collection agency, tell him that you expect written follow-up with details about how much they claim you owe, the name of the original creditor and what steps to take if you don't believe you owe the money.

Step 4. Dispute inaccuracies.

If the debt isn't yours, is a result of identity theft, has already been paid or is more than what than you think you owe, you need to file a written dispute within 30 days of the agency's first contact with you. The written notice, which you should have received within five days of first contact, should have instructions on how to dispute the debt.

Once filed, the agency must either correct the inaccuracies or prove that you owe the debt. There is no set time for the agency to conduct its investigation, but it cannot resume collection action unless it confirms the debt.

Step 5. Document every contact.

Keep a log of who calls and when. Take copious notes on everything said and agreed to. And save everything -- even voice mail messages if they include any promises or threats. Any letters or forms you send should be by Certified Mail, Return Receipt Requested. In fact, it's good to send a written confirmation of anything that you may need to prove later. For example, payments agreed to, promises or threats, rude or harassing comments.

Step 6. Select your strategy.

If the debt is legitimate, you essentially have two ways to play your hand.

Option 1. Call their bluff. Send the agency a letter (via Certified Mail, Return Receipt Requested) telling them not to contact you anymore. After that it can only contact you once more to explain how it's going to proceed. If you're lucky, the agency will decide it's not worth its time to pursue you and that's the last you'll hear from its collectors. If you're unlucky the agency will sue. They usually don't, but there's no way to predict which route they'll take. The more you owe, and the more likely you are to have the money, the greater the risk they'll take you to court.

Option 2. Cut a deal. Bluntly ask the collector, "How much do I have to pay to make this go away?" John (not his real name) spent eight months working for a debt collection agency after college. Like many agencies, his would buy bundles of bills that hospitals or credit cards couldn't collect, paying only a percentage of what is owed. (Other collection agencies get paid a commission based on what they are able to collect.)

The bottom line is that they are often willing to negotiate a partial payment because they can still turn a profit. While the amount they're willing to accept varies, John says it usually ranges from 30% to 50% of the debt.

You don't have to pay it all at once. Collection agencies are usually open to monthly payment plans. Just be sure the agency sends the terms in writing.

Step 7. Buy some time.

If you can't agree on a repayment plan, or don't have the money to make a serious offer, the collector will put you into a calling queue -- an automated system to make sure he pesters you on a regular basis.

John says the best way to get a collector to temporarily stop calling is to make a promise-to-pay -- even if it's a trivial amount like $20. That should take you out of the queue for at least a week, maybe even a month.

But it's important to keep any promise you make. At John's agency, the collectors' bonuses were based on both the total amount of dollars they collected and a promise-to-pay versus dollars-collected ratio. So if you make a promise to pay and don't follow through, the collector is penalized for that -- and is guaranteed to be even less amenable to you the next time he calls.

Step 8. Establish the rules for when and how you can be contacted.

Whether you're seriously negotiating or just buying time you have the right to tell the collector not to call at work, before 8 a.m. or after 9 p.m. You can even have all calls and correspondence go through your attorney.

Step 9. Seek the right kind of help.

If you get tired of dealing with the calls and can't agree on a repayment plan, it's time to seek outside help. Be wary of the companies out there that promise an easy solution to debt -- these credit repair "doctors" and debt consolidators often end up doing more harm than good. The best place to turn for help is a member of the National Foundation for Consumer Credit. They work with creditors to stop harassing phone calls and negotiate a realistic repayment plan that forgives a substantial part of your debt, all for a reasonable fee.

Step 10. Complain about any agency that breaks the law.

When debt collectors cross the line, call them on it. You can use those records to report agencies that break the law to your state's attorney general, the Federal Trade Commission and a local lawyer who specializes in battling bill collectors. Click here to learn more about reporting bad collection agencies.

It's important to know that whatever happens, the collection agency usually notifies the credit reporting agencies about your delinquency. The debt will then be marked as a "Collection Account," including the amount, and whether or not it was paid. Even if you pay the amount in full, the entry is not automatically removed from your report, although it should be updated as "paid."

You should also know that if you get them to agree to accept less than the total amount of debt, the amount they forgave may still show up on your report as a bad debt. However, you can try to negotiate what they will report when you're negotiating the terms of a payment agreement. (Again, get it in writing.)

Regardless of what gets noted on your report, the fact that you had an account in collection may show up on your credit report for seven years.

By Tracy Needham

Interest.com Contributing Editor

Have a question about your finances? Ask us at editors@interest.com