Eliminate your debt forever! Stop harassing phone calls! Talk radio, late night TV and the Internet are littered with ads that promise a quick and easy way to get out from under a mountain of debt. These commercials by so-called debt settlement companies say they can help you reduce your debt as much as 75% by negotiating with your creditors.  What the misleading ads don't make clear is that you have to pay the debt settlement company a hefty fee upfront and their advice usually consists of bad moves such as stopping payments to your creditors and closing down your credit accounts, which immediately damages your credit score. The debt settlement companies keep their fee even if they don't deliver on the promised services, which is pretty often judging by the huge number of complaints about these firms. According to the non-profit National Foundation for Credit Counseling, consumers who turn to debt settlement firms end up worse off than before, deeper in debt and with lower credit scores than when they first tried to tackle their money problems.

Fortunately for consumers, state regulators in New York and Texas think that debt settlement companies are a big problem for consumers too. Last week, New York Attorney General Cuomo announced a nationwide investigation into the debt settlement industry. Calling it a "rogue industry", Cuomo issued subpoenas to 14 debt settlement companies seeking information on their business practices and called for any consumer who believes he or she has been defrauded by a debt settlement company to contact his office at 800-771-7755 or www.oag.state.ny.us. In March, Texas Attorney General Greg Abbott sued Richardson, Texas-based Credit Solutions of America accusing it of defrauding Texans by failing to negotiate settlements with its customers' creditors. Texans who have a complaint can call (800) 252-8011 or go on online at the Texas Attorney General's Office.

It's understandable that if you're saddled with debt and can't pay your bills, you want to believe there's a quick way out. But speaking directly to your lender to work out a payment plan or working with a good credit counselor who can help you do that is much more effective than going to a debt settlement company and shouldn't cost you anything. There are scammers posing as credit counselors too though, so be sure to only work with a credit counselor who has been vetted by the National Foundation for Credit Counseling.

As for long-term solutions, it's criminal that these firms are allowed to advertise these kind of services in the first place. One of the most effective moves that regulators could make would be to have the Federal Trade Commission crack down on the advertising practices of these firms and impose stiff financial and criminal penalties for violations.  The recession is hurting a lot of people but trying to profit off of people already in dire financial straits is just plain wrong.

- Donna Rosato