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Now more than ever before, radio and television advertising is flooded with ads purporting to resolve your debt and credit issues.  Are these debt settlement firms a panacea or another pitfall?  If you’re not careful, you will find yourself not climbing out of the financial hole you’re in, but digging yourself deeper into debt.

Credit counseling is a good way to get started.  You will find most reputable agencies are working with clients to ensure that your income matches your expenses at a minimum.  Ideally, you want your income to exceed your expenses, but you need to get to break-even before taking the next step.  It starts with curbing your spending.  It moves onto establishing a solid budget in order to get income and expenses into balance.  Moving beyond that - the work begins to initiate meaningful savings plans.

For those in the most serious situations, many firms now offer a fee-based debt management system to help the client restructure and repay their obligations.  These are most often offered on a percentage basis or a monthly fee basis with you, the client, paying money to the debt management firm.  From that, they pay your obligations and take their cut.

So what’s the pitfall?   Too many people are still using their credit cards.  They’re not budgeting for anything.  They throwing good money after bad, bridging the gap on one end of the equation with the "help" of the debt management company while still supplementing their income with credit card spending.  Not good.

The lure of an attractive advertising campaign can be strong.  The television or radio extends its imaginary hand, promising to "eliminate your debt."  It’s hard, when you’re drowning in a financial morass, not to reach out and grab hold of that helping hand.  Truth be told… anyone claiming to be able to "eliminate your debt" is highly unlikely to back up that promise.  Negotiate new terms on your behalf?  Probably.  Consolidate your debt into "one manageable monthly payment?"  Sure, if you stop increasing your debt load.

Never forget, you can always go to your Better Business Bureau in order to ascertain the quality of the firm you are intending to use.  You will see the firms’ ratings with regard to overall level of service and customer complaints and are awarded a letter grade of A+ (being the best) to F (for failure).  You must use due diligence!

Other typical pitfalls and issues to avoid:

• Companies that offer you a document that claims to absolve you of all of your debt.
• Companies that charge fees "up-front" or fees that are unreasonable steep.
• Lenders can still sue you even though you’re hoping to settle.
• The process can take several years to accomplish, with the industry average being about 36-months.
• This will negatively impact your credit and debt interest will continue to accrue during the process.
• Companies that advise you to stop communicating with your lenders or stop making payments to your lenders.

Tips and information for you:

• Always communicate with your lenders.  The worst thing you can do is cut them off.
• Find a firm that is certified with the National Foundation for Credit Counseling.
• Lenders would rather get something instead of nothing.
• You will probably have to pay income tax on the amount of the forgiven debt.
• Do not sign any contracts or agreements until you’ve read and understood them completely.
• Check the laws in your state - some, for instance, prohibit the collection of fees earlier than "half-way" through the process.

Most importantly, client beware. As with any industry, there are plenty of bad apples out there who will make your situation potentially far worse.  Emails and websites tout a way to consolidate bills into one monthly payment without borrowing; stop credit harassment, foreclosures, repossessions, tax levies and garnishments; wipe out your debts; or rid bad credit. These offers often involve bankruptcy proceedings , but they rarely say so.

Proceed with caution.