Have you maxed out your credit cards? Have the minimum payments become so high that you cannot afford them? Perhaps you have not been able to keep up with your minimum payments and the interest and penalties have been tacking on hundreds of dollars to your total balances each month.

How do you plan to pay down your credit card debt? If you're having financial difficulties, you may not have a clue as to when you will be able pay off your credit cards. Now imagine that a company promises to drastically reduce, if not erase your credit card debt for pennies on the dollar. If it sounds too good to be true, it probably is.

Truth About Debt Settlement Companies

According to the Federal Trade Commission (FTC), most debt settlement programs are offered by "for-profit" companies, some of which are scams. Debt settlement involves the debt settlement company negotiating with the debtor's creditors so they agree to accept a lump sum payment that is less than the full amount owed.

With debt settlement, the debtor sets aside a specific amount of money each month in an escrow-like account for 36 months or longer, which is stashed away for paying a settlement that is eventually reached.

Often, debt settlement companies encourage the debtor to stop paying their credit card payments to help "motivate" the creditors to settle.

Be aware, there is no guarantee that a credit card company will settle on a debt. Since debtors are asked or encouraged to stop paying their credit cards, their credit is negatively affected. As the late fees and penalties accrue, the debtor goes even further in the hole. Debtors also continue being contacted by the creditor, and these calls and letters are bothersome.

If you are considering debt settlement, you should speak to a bankruptcy attorney before you make any decisions. With a Chapter 7, a qualified debtor can erase or wipe out 100% of their credit card debt and begin rebuilding their credit as soon as the bankruptcy is discharged.