If you are able to settle, you'll be getting off rather easy. Debt settlement companies can sometimes get you off the hook for a large percentage of your debt - in many cases, up to 50% will be written off.

Most people don't know this, but if you settle a debt for less than the amount you owed, you are potentially responsible for taxes on the forgiven debt. Look at it this way: You received goods and services for the full amount of debt, but you're only paying for a portion of it - sometimes less than 50%. Anything more than $600 is generally considered taxable, but the IRS will sometimes waive the tax if you can prove that your assets were less than your liabilities when the debt was settled.

If you're filing bankruptcy, you will likely want to hire an attorney. But for debt settlement, a company is sufficient, or as I said, you can often do the legwork on your own.

Get your friends involved. Let your shopping buddies know that you're on a tight budget, and they can help you out when your willpower starts to weaken at the mall.

If you are, consolidating at a lower interest rate can help you pay off your debt faster. But if there's even a small chance that you'll spiral back into debt, it's not for you.

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.

You also need to understand that when you consolidate credit card debt into mortgage debt - like a home equity loan or a HELOC [ home equity line of credit ] - you're taking an unsecured debt and turning it into a secured debt.