Of all the debt relief options out there, debt settlement is still the most controversial, misunderstood, and confusing option. I got the following email just the other day:

"Hi. I am considering a debt settlement program and overwhelmed by the information and choices. Would love some advice."

Here's my response:

Hi, debt settlement is certainly a confusing option. Here are some points to think about:

1) Debt settlement is a legitimate option, and can save you a lot of money, but you need to be careful who you get help and advice from. You'll hear lots of "experts" tell you that it is a scam or a way to ruin your finances, but it is just one of several different options, all of which have their place but not all are the right solution for everyone.

2) You'll hear lots of horror stories from people who were "ripped off". Of course, some companies can scam you, so you need to do your research carefully. Check with the Better Business Bureau, ask the company for references, get everything in writing before you agree to anything or send in any money or documents. Lots of people who say they were ripped off probably just thought it was an easy way to get out of paying their entire balance, which it is definitely not.

3) It is definitely not right for everyone and definitely not an easy way to get out of paying your debt. So you need to understand what it is and how it works. Lots of people tell me they don't want to use debt settlement because it will "ruin my perfect credit". Well, you either need to be behind in your payments already, or you need to be in a position where you can no longer afford to make your payments and stop paying. If you are current, then creditors have no reason to offer you a deal! So, if that doesn't sound right for you, then settlement is probably the wrong solution.

4) Yes, it will damage your credit - being behind in your payments will hurt your credit, so will having a debt listed as "paid for less than full" which is what a settlement is. But having lots of debt also hurts your credit. And if you have so much debt that you cannot afford to buy things, credit really isn't that useful anyway. Most people don't think about their credit this way, but basically credit is used for borrowing money, and if you have to decide between saving your credit or saving yourself from financial collapse, which is more important to you?

5) You can even do it yourself. It sure helps if you know what you are doing, as it will save you lots of time, energy, and money. I only settled one of my own debts and didn't get such a great deal. But like anything you do yourself, you need to decide if you're better off learning how to do it yourself, or getting professional help.

Your thoughts?