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The ads for credit card debt settlement companies make it sound pretty easy. If you have $10,000 or more of credit card debt, these firms say they can negotiate with your lender so that you can walk away from all but a small percentage of the money you owe.

Are these promises on the level? The Better Business Bureau calls the debt settlement industry one fraught with "inherent problems." That's a diplomatic way of saying some of these companies are outright scams. In recent months several have been targets of legal action by state attorneys general.

The typical debt settlement business model requires an upfront payment from a distressed consumer. For that payment, the company agrees to negotiate on the consumer's behalf with the credit card company. Sometimes the company makes an effort to negotiate a reduction in debt, sometimes it simply disappears with the money. The consumer is left with less money and more debt, along with a severely damaged credit rating.

But a debt settlement firm that says credit card companies will negotiate a lower balance isn't necessarily lying. Lenders will, in some cases, do just that. However, the consequences for the consumer aren't particularly pleasant and need to be weighed against paying off the legal debt.

Expect more collection calls

To begin the process, the consumer stops paying his credit card bill for at least six months. Almost immediately the collection calls begin and the consumer's credit rating takes a hit.

At the end of six months the credit card company will likely write off the debt as a loss. However, you will still legally owe the debt and your credit score falls even further. It is at this point that credit card debt settlement companies say they go to work, negotiating with your credit card company to agree to lower the amount owed, in exchange for the agreed-upon amount to be paid.

However, the Federal Trade Commission (FTC) notes that it can take years for these debt settlement firms to get around to negotiating with your lender. In the meantime, late fees and interest are accumulating. Oh yes, those calls from collectors will continue. In fact, the credit card company might sell your "uncollectible" debt to a more aggressive debt collector.

Should you decide to go the debt-settlement route, the FTC says you would be much better off negotiating with the credit card company directly. You would save the large up-front fee and the percentage of the reduced debt the company usually demands as a final payment.

Seek good advice

Before taking that step, however, the FTC suggests you consider the move carefully and get expert advice. Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free information and workshops.

They should discuss your entire financial situation with you, and help you develop a personalized plan to get you out of the hole. Finding reputable credit counselors has recently become more convenient because the new credit card law requires credit card issuers to include a toll-free number on their statements that directs cardholders to information about finding nonprofit counseling agencies. The federal government maintains a list of government-approved organizations , by state, at the website of the U.S. Trustee Program.

Debt settlement companies that make the process sound simple and relatively painless should be avoided. According to the FTC, some "red flags" include ads that tout some alleged government program or "guarantees" it can reduce your debt or makes other promises. However, the biggest tip-off of all is the requirement that you write a large check to them before they start work. By Mark Huffman ConsumerAffairs.Com

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The Federal Trade Commission has settled with a promoter of credit repair and debt relief services for $2.5 million over charges of deceiving customers with false promises of cleaning up their credit and drastically reducing their debt.

The FTC complaint alleged that Sam Tarad Sky, and his companies – Credit Restoration Brokers and Debt Negotiations Associates – illegally charged consumers $2,199 before performing any service, and failed to tell customers they could cancel their contract within three business days.

“He also falsely told consumers who bought debt relief services that they could satisfy their debt by paying much less than the full amount owed, such as 30 cents on the dollar,” the FTC said.

The settlement order imposed a judgment of $2.5 million against Sky, and $100,000 against Sky’s attorney, Kurt A. Streyffeler, and Streyffeler’s law firm, Kurt A. Streyffeler, P.A. The documents were filed in the U.S. District Court for the Middle District of Florida, Fort Myers Division.

The settlement order bars Sky and his companies “from deceiving consumers about any credit repair or financial good or service.” It also requires them to back up any debt relief claims they make; inform consumers that they have a right to cancel; and explain to former clients how to have their escrowed funds returned.

The FTC claimed that Sky falsely told consumers he could improve their credit reports by removing negative information such as judgments, foreclosures, tax liens and bankruptcies from the reports — regardless of the accuracy of the information.

The FTC’s complaint also alleged that he and his lawyer falsely told consumer reporting agencies that their clients were identity theft victims when disputing negative items.

Technorati Tags: 5 Million, Business Days, Consumers, Credit Debt, Credit Repair, Credit Restoration, Debt Negotiations, Debt Relief Services, Debt Repair, Debt Service, Debt Services, False Promises, Federal Trade Commission, Fort Myers, Ftc Complaint, Judgment, Promoter, Sky, Tarad