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

You settled a debt instead of paying in full will stay on your credit report for as long as the individual accounts are reported, which is typically seven years from the date that the account was settled. Unlike with bankruptcy, there isn't a separate line on your credit report dedicated to debt settlement, so each account settled will be listed as a charge-off.

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%.

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

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.

You really don't need to hire a debt settlement company to negotiate with your creditors.

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.