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The collet is simple to replace - it will pull out if you unscrew one of the large bolts enough. Keep unscrewing the bolt that holds in your bits, and the collet will fall off in your hand. 1/4" or 1/2" replacements are easy to find on eBay or any Skil dealer.
Most routers have a "Pin" that can be depressed to lock the router spindle. But first, rotate the spindle to match a small hole in the spindle with the pin. With the spindle locked in place, use a wrench (routers often come with this) to loosen the "collet" which holds the router bit. The collet nut will turn counterclockwise when loosening the nut, when looking directly at the bottom end of the router bit, i.e. when looking down at the router when the router itself is up side down.
To install a bit, reverse the process above. Do not overtighten. About a on-eighth turn past handtight will suffice. The collet or the threaded end of the spindle can be stripped out.
The fit is just a little more snug than you expect. The collet is springy, and will expand to fit your bits, even if they were oversize (which is very unlikely). Put on a leather glove and just push the shank of the bit into the collet. Do not try to file down the shank of your router bits, you will only make them run eccentric. You don't need to remove the collet. Just loosen the locking nut about a half turn after it is easy to turn.
Good luck. Thanks for using FixYa.
I just did this on my black and decker router. You need to unscrew the nut that holds the collet and remove it altogether. Then slip out the collet in there and replace it with the new size. Take care to notice how it goes in when you take the old one out. Then rescrew the nut that holds it in place and tighten. My router had three collets and only one of them works for each size, so if it doesn't tighten properly, it may be the wrong size. Good luck.