Debt settlement companies are cropping up all over, and the bogus firms are doing consumers more harm than good. Debt settlement should be a last resort, because using it can ruin your credit scores for years to come.

There’s an old saying: “If it sounds too good to be true, it is.” And that’s the case with debt settlement.

Contrary to wild promises of settling all your debt for pennies on the dollar and making you debt free within 90 days, they generally can’t do that. Not unless you have zero assets and owe so little that you could easily do it yourself.

For one thing, some debts cannot be included in a debt settlement plan. For instance, student loans, back taxes, and child support. And some creditors will not accept less than you owe unless you can demonstrate that you have no assets and no hope of getting the money.

Meanwhile, these companies usually ask for a hefty fee up front and then take a percentage of your debt in exchange for using their negotiation skills in dealing with your creditors. And often those highly advertised skills amount to nothing more than a phone call telling your creditor that you can’t pay the balance and asking what they’ll accept as a payoff.

Then, since you don’t have the entire amount, they’ll begin collecting money from you and holding it in an account until you accumulate enough to pay the debt. And all that time, your creditors are not being paid, so you’re still accumulating interest and fees on the debt.

Can you see how this plan would help to bury you deeper and deeper in debt – and send your credit scores plummeting farther into the basement?

Debt counselors, on the other hand might charge you as much as $20 to help you set up a plan and learn how to talk to your creditors yourself. Often you can get reduced interest, a temporary suspension of payments, or payment terms you can live with. With their guidance you may be able to avoid default and the resultant damage to your credit scores.

One more caution: Many debt settlement firms will advise consumers to cease all contact with their creditors. In fact, some will instruct you to send a change of address form and direct all creditor mail to their company.

This is a very dangerous practice because you’ll lose all knowledge about your debt. You’ll have no way to see if the debt settlement company has sent a payment or if your debt has been sent to collection.

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