Settlement

• Credit card debt settlement often involves working with a third party -- a debt settlement agency--to get credit card companies to settle for less than the debt owed. Settlement is not cheap; "some companies charge 14 percent to 18 percent of the total face value of the debt you want settled, while others require a large percentage of the amount they actually settle for you," says MSN Money's Liz Pulliam Weston.
  
  

Misconceptions

• Debt settlement is often confused with credit counseling. While credit counselors negotiate with lenders to reach payment agreements that are feasible for debtors, debt settlement agencies negotiate for lower repayment amounts.
  
  Another misconception is that you must go through a debt settlement agency in order to settle credit card debt. It is possible to approach credit card companies personally to ask for debt settlement.
  
  

Warning

• Debt settlement is a largely unregulated industry, often populated by fly-by-night agencies. Debt settlement often wreaks havoc on the debtor's credit as well. Many debt settlement agencies advise debtors to stop paying bills altogether until settlement is reached, which has a detrimental effect upon credit scores. Credit card companies can report the unpaid portion of the debt after settlement as a default, which is also destructive to credit scores.