Posted by Elisabeth Leamy, Tue Jan 25 2011, 12:38AM

Q: Will it ruin your life if you have a credit card debt relief company help in in reducing your debt

Q: Will it ruin your life if you have a credit card debt relief company help in in reducing your debt? You see I have had multiple knee surgeries over the past 5 years and we used our cards to survive while I was off work. We are drowning. Please, I would love some advice on what to do.
~K, Minnesota

A: Going this route won't ruin your life, but it probably will ruin your credit. I'm pretty sure you are talking about debt settlement companies that advertise they can settle your debts for a fraction of what you actually owe.

When you negotiate with your creditors to pay a lower amount than you owe, there is an immediate and marked impact on your credit rating. The creditors "charge off" the amounts they forgive, which means they report those amounts to the credit bureaus as an unpaid debt, a loss. That will be a black mark on your credit report for seven long years. So if you have a decent credit score now, debt settlement is a risky move. On the other hand, if your score has already taken a beating, debt settlement is one option.

But you don't necessarily have to hire help to do it. Many consumers succeed in settling their debts themselves rather than contracting with a company to do it for you. Here's why that is worth considering. Companies that help people negotiate debt settlements often charge high fees. In other words, money that could be going toward your debts is going to them instead.

Fortunately, one industry problem has been addressed: namely, companies charging those high fees up front and then failing to really help their clients. Last year the Federal Trade Commission approved new rules that banish up-front fees. Hopefully the result is that the bad actors in the industry go out of business, leaving debt settlement companies that really care about their clients and actually know how to settle debts for them.

There is one alternative that is not as dramatic, but is more time tested: credit counseling by a reputable NON-PROFIT credit counselor. They don't reduce your balances owed, but they often can get your creditors to agree to a lower interest rate and smaller monthly payments. Here are two ways to find them: the National Foundation for Credit Counseling is the parent organization for Consumer Credit Counseling Service, the granddaddy in the field. Call (800) 388-2227 or go to to find the CCCS closest to you. The other reputable resource is the Association of Independent Consumer Credit Counseling Agencies, reachable at (866) 703-8787 or online at

In the end, paying off debt is a lot like losing weight. There are no miracle cures. Just as you need to exercise more and eat less, you need to pay off more and spend less to build a healthy financial future.