Who's Best to Help You Deal With Debt?

Q. I need help getting my debts under control. What's the difference among credit repair, debt settlement and credit counseling?

A. Credit repair companies are scams, says the Federal Trade Commission. For up-front fees—usually thousands of dollars—they falsely claim to have inside connections to remove bankruptcies, liens and other black marks from your credit report. Instead, they take your money and run—or flood credit-reporting bureaus with frivolous disputes, making your debts temporarily disappear from your credit report. But that only puts your file in a pending status, and no lender will issue you credit. Avoid them, period.

Debt settlement companies or attorneys negotiate with your creditors for you to pay less than the amount owed. This process is legal but can be expensive. Your negotiator’s fee is either charged monthly or is based on a percentage of your total debt or the amount of the reduction that is negotiated.

Either way, it can cost thousands, and you may be given the unwise advice to stop paying your bills during the negotiations.

What's more, not all debt settlement companies are legit: New York Attorney General Andrew Cuomo recently sued two for false advertising and fraudulent business practices, and launched a Web site warning about debt settlement.

The best option is credit counseling, which provides free or low-cost advice on money management, personalized debt repayment and consolidation, and similar services.

There are shady credit counselors out there also, so find a good one via the National Foundation for Credit Counseling (1-800-388-2227), which operates the oldest, largest and most respected nationwide network.

Sid Kirchheimer writes about consumer and health issues.