Absolutely. In fact, debts in collections are often easier and cheaper to settle than debts with the original creditor.

Here's why: collection agencies (especially debt buyers) typically purchased your account for 4 to 10 cents on the dollar. A $5,000 debt might have cost them $300 to $500. Anything they collect above that purchase price is profit. So when you offer 30% to 40% of the balance, that's still a very good return on their investment.

What you can expect to pay: Debts owned by third-party collectors typically settle for 20% to 50% of the balance. Older debts settle for less. If the statute of limitations in your state is approaching, the collector has even more motivation to take what's offered because they lose the ability to sue once it expires.

How to do it yourself:

First, verify the debt is legitimate. Request a debt validation letter under the FDCPA. The collector has 30 days to provide proof that you owe the money and that they have the right to collect it. Don't offer to pay anything until you've seen this documentation.

Second, figure out who actually owns the debt. Is the collection agency collecting on behalf of the original creditor, or did they buy the debt outright? Debt buyers are generally more flexible on settlement amounts. Agencies working on commission for the original creditor have less room to negotiate because they need the creditor's approval.

Third, make your offer in writing and include these terms: the specific dollar amount you'll pay, that it's a "settlement in full" or "payment in full satisfaction of the debt," that the collector will report the account as "paid in full" or "settled in full" to all three credit bureaus, and that no remaining balance will be sold or assigned to another collector.

Get everything in writing before you pay. This cannot be stressed enough. A verbal agreement over the phone means nothing. Get the settlement terms on the collector's letterhead before you send money. Pay with a cashier's check or money order, not a personal check or ACH debit. You don't want the collector to have your bank account information.

One warning: Paying or even acknowledging an old debt can restart the statute of limitations in some states. If the debt is close to expiring, talk to a consumer attorney before you make contact with the collector.