Without a doubt the most controversial debt reduction strategy is debt settlement. If you listen to the "experts" (remember them from my recent post?) debt settlement is either a scam or something that will ruin you financially.

If you listen to the companies that offer debt settlement, its the perfect answer for nearly anyone with credit card debt.
If you listen to those who tried debt settlement and it didn't work out for them, it's evil.
If you listen to those who used it successfully, its a blessing.

So what is the truth? Is debt settlement good? Or bad? Or evil? Or none of the above?

The honest truth is that it is the right option for some people (those really struggling), the wrong option for other people (those looking for an easy way out of debt), good when you use the right company (so ask lots of questions first), and bad when you use the wrong company (run away if it sounds too good to be true or you get rushed into signing up). How's that for a roundabout answer? But it is the truth. Really, it is.

so, you need to decide for yourself if it's right for you - and if it is you need to do your homework before going forward on your own, or hiring a company to help you.

And since there are so many factors involved, and so many opinions about debt settlement, here is a list of the pros and cons:

PROS:

• Faster than most other debt reduction options. This isn't a long-term debt restructuring process. Once you settle, your debt is paid off. It doesn't happen overnight, but it won't take years of payments like credit counseling or home equity loans.
• Debt paid off completely. Again, once you settle, your debt is paid off. Then it's up to you to STOP using your credit cards, so you don't end up BACK in debt all over again.
• Save 40-60%. The amount can differ, depending on the bank that offers the credit card. But typically, each debt will be paid off at a significant discount from your original balance. That's what makes settlement so appealing. And so aggressive and stressful at the same time.
• Some companies help you save up money for a settlement payment. Some don't and require that you find your own way to come up with the money to pay off each card. But those that do will put your money into an escrow account, and once you accumulate enough, will use that money to pay off the settlement amount.
• Can avoid bankruptcy. If you're way behind on your payments, this is a alternative to bankruptcy. And typically its a lot less stressful and complicated than bankruptcy, too.
• Don't need a lawyer. Some settlement companies are located within law offices, or use company names that look like law offices, to sound more official. And some lawyers even offer settlement services. But you don't need a lawyer to settle your debt.

CONS:

• Need to be behind or stop paying. Otherwise why would the banks accept less than what you owe? The threat of getting nothing, like when you are behind in your payments, entices them to consider a settlement offer. So if you are not behind, settlement won't work unless you stop paying (keep in mind I'm not telling you that you should stop paying, just letting you know how it works).
• Many unethical companies. The biggest problem is usually that these companies don't fully educate people how the process works. So when it gets stressful, people panic because the stress is not expected. And you don't negotiate settlements right away, especially if you're not more than 30 days late with your payments.
• Pay taxes on savings. If you owe $10,000, and settle for $6,000, you owe taxes on the $4,000 you saved. Of course, this is still usually a LOT less than what you would have paid in interest over 20 or so years it would have taken you to get out of debt. Talk with your tax person if you're not sure how this will affect you.
• Fees. You'll either need to pay someone to settle the debts for you, or you'll need to learn how to do it yourself (which can take time, money, or both). The fees vary quite a bit, so its a good idea to shop around.
• Some companies require lump sum. In which case you'll need to create your own separate account to save up enough money to settle. Typically, you would take the amount you normally pay the banks and put that into this account. So it's not necessarily a problem, but you will need to be disciplined enough to save if you don't already have enough saved up.
• Credit score will take a hit. After all, you're not paying your debts back as you agreed to when you signed up for the credit card. So the settlement will appear on your credit report, along with the late payments. And your credit score will be lowered. But if you have so much debt that you're in financial trouble in the first place, "good credit" is merely an illusion anyway.
• Creditor calls. If you're behind in your payments, your creditors will call. A good settlement company will help to reduce or eliminate these calls. But you'll still get them. And they're no fun. But if debt settlement is really the right solution for you, they're simply a small bump in the road.
• Not for everyone. Debt settlement is aggressive. And stressful. And takes time. And requires you to stop paying if you're not behind already. So if you're not comfortable with any of the "cons" above, or if you really can pay your bills, it probably is not right for you.

So there you have it. The "truth" about debt settlement, from someone who's been through it. Keep in mind that I'm not a lawyer. Or a tax pro. Or a financial advisor. So I'm not telling you what the right solution is for your debt problems. But I hope this info helps you weight the pros and cons of debt settlement, and pick the right solution for your debt problems.

What do you think? Comment below and let me know.

Everyone's got an opinion when about the best way to get out of debt. For the average person, it can get really confusing with all the different options out there.

Little did I know just how confusing!

When reading an article the other day I came across an option I had honestly never heard of - debt avalanche! So if I've never heard the term no wonder people get so confused when trying to find help getting out of credit card debt.

And what better time to talk about these debt snow terms than while the Winter Olympics are taking place!

So what is debt avalanche?

The opposite of debt snowball, of course. With the debt snowball method, you pay off the smallest balances first, add what you were paying, and the "debt snowball" amount keeps getting bigger and bigger.

With the debt avalanche method, you pay off the highest interest rate first, and then keep going downhill (like an avalanche) with the next highest interest rate.

Then there is the "debt snowflake" method, where you cut expenses, and add the savings to your next credit card bill payment, one at a time, like falling snowflakes.

I guess the person who came up with these terms likes winter!

OK, now which one is the best? Debt avalanche? Or debt snowball? Let's take a closer look:

Debt avalanche:

• Going strictly by numbers, debt avalanche is better. You're targeting the accounts with higher interest rates first. Which is a good thing.
• But if people with debt were really good with numbers, they probably wouldn't have any debt, right?
• The downside to debt avalanche is that with higher interest rates, you probably also have a higher minimum payment. So less money is going towards the principal. So it will take longer to see results.

Debt snowball:

• Starting with the lower balances means you will see results faster. And for some people, this means they might be more motivated to stick with it.
• But looking at the numbers, your high interest accounts will keep growing. Which isn't a good thing.

so which method should you choose?

Simple - go with the one that makes the most sense to you. Even if you hate winter. And don't like snow. Pick one, and stick with it. Because in the end, both methods work.

But just like people know that exercise is a good thing, no debt relief program works unless you do one simple thing - take action! And eventually, you'll get to the bottom of the snow covered "debt mountain."

Years ago when I first started out on my own, I had no idea who to turn to for financial advice. So I read ads in the newspapers, watched infomercials on TV, and ended up seeing some of the same names over and over again. These were the "experts".

So I started to listen to them. And buy their books. And even went to one of their seminars, by a guy named Charles Givens.

It was so good I even bought "the system" he was selling for true financial independence. It only cost a couple hundred dollars, so it wasn't too expensive. At least at first. Then I would get letters and phone calls offering me the "advanced system". Which cost a few thousand dollars.

And that's when I made the decision to stop.

After all, the books gave out a lot of helpful, proven advice. And the first system taught a few more details.

And this guy was a financial expert. Made his fortune using the same techniques he was teaching (note - keep reading).

Stuff about "buy term insurance and invest the difference". Sounded good. So I followed the advice. And most of it was pretty good. I learned about life insurance and mutual funds. And started saving regularly by having money taken out of my paycheck. All good advice. Debatable, as there are other opinions out there. But still good advice. Especially for a guy in his early 20's with no knowledge of saving or investing or insurance (of course, I made some real bad decisions not related to this advice and ended up with mountains of debt, but that's a story for another day).

Then a few years later I read how he was sued. By people who paid thousands of dollars for his system. Who found out that he actually DID NOT make his fortune using these techniques. He actually made his fortune selling these techniques!

Not to say the techniques were all bad.

In fact, they do work to a degree (espcially the basics found in his initial books. It's the much more expensive stuff he tried selling you later that are questionable, like real estate tactics). But he sold you on his story. About how these techniques were proven, and made him a fortune. Which was false.

So why is this important?

Because every time I read a story about Dave Ramsey or Suzy Orman or one of the other financial "gurus", I wonder.

• I wonder if they use the advice they teach.
• I wonder if they really know what it is like to be in debt.
• I wonder if they really know what it is like to struggle financially.
• I wonder if their techniques are solid financial advice.

And I wonder if they'll be the next Charles Givens. Or the next Kevin Trudeau (similar story to Given's).

Not that I doubt that much of their advice is good. But every time I see someone talk about Ramsey like he is some sort of financial GOD, I'm skeptical.

Have you ever used any of the debt reduction or personal finance techniques taught by Ramsey or Orman? And did they work for you?

Thanks to The Digerati Life for this post. If you're considering refinancing, you'll find this information helpful:

Many homeowners who are struggling to keep up with their monthly mortgage payments think of refinancing when interest rates go down. When you question some lenders about refinancing options, you can expect to start receiving e-mails and telephone calls almost everyday.

There are a number of reasons why people resort to refinancing and one of them is to make the most out of reduced interest rates. The borrowers have the opportunity to reduce their monthly mortgage payments if the interest rates go down. If they want to reduce the refinance loan term, they might have to pay higher monthly payments, but they can still save on interest costs. By shortening the loan term, they can pay it off faster.

Before you refinance, you'll need to observe interest rate fluctuations. As rates go down, so do a slew of other rates, such as savings account rates and credit card interest rates. This is actually a good thing for the housing loan market, but you'll need to keep an eye on a moving target. Of course, the goal here is to try to lock in the lowest rate that you come across. You can do this more than a month ahead of closing, which is basically the final step when you refinance. If you’re not able to do so, you can lock in a rate even five days prior to closing.

Like getting your first mortgage, you’d have to apply for a "new loan" to refinance your existing mortgage. If you remain with the same lender, you might save some money and time since there are reduced formalities. Realizing the extent of competition out there, it’s beneficial for your lender to provide you a good offer. Nevertheless, there are a lot of lenders who are eager for your business and you can shop around, not only for reasonable rates, but also to save money on fees. The procedure which involves closing with one lender and starting with another lender, usually generates a range of fees that can frequently accumulate, so get a list of all probable fees. Request a quote that incorporates the correct fees.

If you’re thinking about living in your home for quite a number of years, then it’s better to make the most of low interest rates. Just like when you took out your original loan, you can also buy points that are a type of prepaid interest. If you have additional cash on hand, this might be helpful. Every point is 1% off the overall loan amount. By paying points, you can reduce your interest rates.

You can also go for a cash-out refinancing where you can refinance with an amount that is higher than what is outstanding on your current mortgage; the difference between your new loan and your old loan is the amount of cash you get to keep. This is basically a technique that will allow you to obtain some money as a tax-free loan on the difference between the present home value and its value from the original mortgage. For instance, if your mortgage balance is $100,000 and your current property value is $300,000, you can refinance for $175,000 and keep $75,000 as tax-free money minus the fees and transaction costs. As per Freddie Mac, one of the leading secondary mortgage market players of the country, almost 60% of borrowers who refinance do this for the aim of cashing out.

The Digerati Life is a personal finance site that offers tips and resources on credit card and debt management. Check out the site’s review of best balance transfer credit cards and 0% APR credit cards.

Now that debt settlement is becoming a more popular option for getting out of debt, so are the scammers. And since most people don't really understand how debt settlement works, getting scammed is a lot easier.

DON'T just sign up with the first company you see on TV without doing your homework!

And don't let yourself get ripped off if you decide to use someone to settle your credit card bills. Think of it as you "hiring" them to perform a service for you. And when you hire someone, you're careful, aren't you? Well, if not, you should be.

Most of the debt settlement horror stories occur because people have no idea what they are getting into. Shame on them!

Know what you are getting into. Learn how debt settlement works. And look for these top 5 warning signs that you should avoid a debt settlement company:

1. Sounds too good to be true - yes debt settlement works. But it takes time. And different creditors look at settlement differently. So if any company promises results that sound too good to be true, watch out!
2. Vague answers your questions - like the old TV commercial, an educated consumer is the best customer. If the settlement company simply want to sign you up and won't answer your questions clearly, then move on to the next one.
3. Want you to send money before you sign (or read) paperwork - you MUST read AND sign paperwork before sending any money. This is your contract. If something goes wrong, and you don't have any paperwork, you're in trouble.
4. Too many BBB complaints - OK, the Better Business Bureau doesn't like the business of debt settlement, and some companies get D or F grades simply because they are in the industry, even with just a few complaints. But if the company starts getting up to 10, 20, 50 compaints, it's a good idea to turn and run.
5. No screening process to see if you are actually a good candidate - no, not everyone can benefit from settling credit card debts. If you are close to bankruptcy, if you have the means to pay on time, if you don't have enough cash to make the settlement payments, then you may need to seek legal advice instead!

If you come across any of these warning signs, STOP!

And look for another company to settle your debts. There are lots of good ones out there. Here are our reviews of the top debt settlement companies we've found (and yes, we get credit for referring you).

If you find out that credit card debt settlement is NOT right for you, here are some other ways to get the debt help you need.

So what do you think is a high credit card interest rate - 10%? 20%? 30%? What about 79%?

You see, over the past few months, the banks have been preparing for the new credit card rules. You know, the rules that prevent them from "gouging" us consumers. So how are they preparing? By "gouging" us now, BEFORE the new rules go into effect!

I had one of my cards go from a 14% interest rate to a 30% interest rate - for no reason. I wasn't late. Don't have a high balance. Haven't gone over the limit. And have had the card for at least 5 years.

So to reward me, the bank raised my interest. I know, they're a business, and they need to make money. But DOUBLING MY INTEREST RATE!? That's not good business no matter what industry you are in.

But that's nothing compared to what one bank is offering. Get this - they are offering a credit card with a 79.9% interest rate!

NO, it's not a typo. 79% interest!

OK, this is not a card designed for the average consumer, it's for someone with past money problems who needs to re-establish credit. So, nobody is forced to use a card with interest rates this high.

But the simple fact that this is even a real card make the banks look exactly like the greedy fools that encourage people to get into debt and STAY in debt.

What can we do? Simple - stop relying on banks.

• Get your debt under control.

• Start your own business or get a part-time job to make extra money.

• Stop buying those things we don't really need.

• And stop buying those things we really can't afford.

• Create your own emergency savings account to borrow from when money is tight.

As long as we give up our financial control to credit cards, we're at the mercy of the banks.

So, in 2010 do what you can to take back that control! What do you think? Let us know in the comments section below: