If you'd asked me a few years ago about debt settlement companies, I probably would have told you to avoid them.

A consolidation makes sense only if you can lower your overall interest rate. Many people consolidate by taking out a home equity line loan or home equity line of credit (HELOC), refinancing a mortgage, or taking out a personal loan. They then use this cheaper debt to pay off more expensive debt, most frequently credit card loans, but also auto loans, private student loans, or other debt.

You'll get much better results by being upfront, answering creditors calls, and responding to their letters. Delaying the inevitable only digs a deeper hole.

Once the settlement is completed, the credit card company will report it to the credit bureaus, which will then make a notation on your credit report that that account was paid by settlement. That's going to signal to future lenders that you left the last guy hanging. That's why, as with bankruptcy, debt settlement is an extreme option, one you shouldn't take lightly. It's not just an easy, cheap way to eliminate debt.

The Bankruptcy Reform Act of 2005 made it harder for individuals to file bankruptcy, which is always the last resort. Unfortunately, simultaneously consumers racked up so much debt that counseling companies - which are higher up on my list if you need help managing your debt - are sometimes unable to help. So if you fall into this camp, debt settlement may be something to consider.

After explaining why you're in trouble, ask the creditor if the company would be willing to accept a smaller amount. Start negotiations at about 30% of the total amount due, with the end goal of paying 50%.

No company can promise an end date, but if you have multiple debts, the first one should be settled within a year.