5 Don'ts of Debt Management

BOSTON ( TheStreet) -- Debt is daunting. Fortunately, there are many debt-management counselors there to help when you're in over your head.

Unfortunately, there are some debt-settlement companies out to fleece you. Over the past decade, the Federal Trade Commission and state enforcers have brought a combined 259 cases against so-called debt-relief providers that have deceived or otherwise abused clients who are already down on their luck. Here are five ways to avoid being a victim.

1. Don't choose a for-profit debt-management agency. There are many agencies dedicated to advising consumers on the art of debt management, including offering budgeting advice and, sometimes, negotiating lower interest rates and monthly payments with creditors. Find one that isn't solely out to take more of your money. Don't be afraid to ask whether a credit counselor will get a commission for signing you up for a debt-management plan. If the answer is yes, go elsewhere. "First and foremost you want to look for a nonprofit," says Ali Mahood, a financial-education consultant in Boston. "For-profit companies will charge high fees and they don't yet follow federal guidelines."

Two of the better-known nonprofit debt-management agencies in the United States are Money Management International and American Consumer Credit Counseling.

2. Don't immediately trust debt settlement agencies. One way of dealing with debt is to stop paying your credit-card bills to the point of charge-off, hoping creditors will say "enough already" and offer to settle the debt for less than you owe. Not-for-profit debt-management agencies don't generally deal with such tactics. But late-night television is full of debt-settlement agencies that offer to negotiate a deal for you, for a fee, promising they're out to get you the best settlement possible. Some may be just out to get you, period.

"There are a lot of shady players in this market," says Odysseas Papadimitriou, founder and chief executive officer of CardHub, an online resource for credit-card-related information.

Papadimitriou recommends avoiding firms that assure you the credit card company will offer a good settlement (since only the creditor can make such a guarantee) or promise the debt-settlement process won't affect your credit score. (It will, and you should ask up front how big a hit your credit will take.)

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