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Here are warnings about the debt settlement process:

Debt settlement companies get paid for their services, even if they declare that they are “non-profit.” Typically, they want to get paid on the front end of the process, whether or not they have done anything for you.
Debt settlement companies have different ways of getting paid. Let’s say you are $15,000 in debt and the debt settlement company wants to get paid X dollars for settling this debt for you. If they only settle $3,000 worth of debt, do you still have to pay the whole fee or only 1/5 of the fee? After all, they have only settled 1/5th of your debt.
The way that debt settlement companies work is to call your creditors and negotiate on your behalf. The lending company is under absolutely no obligation to talk to one of these people. Why don’t you call your lenders directly and negotiate yourself? Many of them have systems in place for working with debtors who have fallen or are about to fall behind in payments. If you sincerely negotiate with your lender(s) and keep to your promises (and payments), you can work through your debt and pay it off.
Get those ideas of “pennies on the dollar” out of your head when it comes to your debt. If you had the $15,000 in debt completely settled whereby you did not have to pay a penny, your payments are just beginning: you will have to pay the debt settlement company. Next, the IRS will treat that $15,000 that was written off on your behalf as “income” and tax you on it accordingly. Finally, your credit score will be in the basement from not paying these debts and will stay on your credit report for up to seven years. Forget about securing new, low-rate credit cards for the most part; forget about getting a car loan at a reasonable interest rate; and forget about a home mortgage. Guess what else? If you tell yourself that you will rent an apartment rather than own a house, the landlord will be checking your bad credit as well before he decides whether or not he will rent to you.
Debt settlement companies will often encourage you to pay them rather than your lender during the negotiation process. After about 180 days, the lender will write-off your loan and then sell the debt. This time, the “pennies on the dollar” image really works because your lender will sell your debt to credit collection agency that will go after you for the debt. They will in fact take pennies on the dollar because they only paid pennies on the dollar to get your debt. Meanwhile, the debt settlement company you hired might well negotiate a deal with this new owner of your debt and of course collect their fee. Oh, one other thing we forgot…your former lender might sell your debt to more than one collection agency…That’s right. You could pay off one of these “pennies on the dollar” people and still have others chasing you, hounding you for money and wreaking havoc with your credit report and credit score. It is a nightmare that just keeps on giving.
Debt settlement programs through third-party organizations will often actually hurt you more than it will help you and you may well wind up paying 20 percent more than what you own now in various fees. On top of that, you will have terrible credit and no access to new loans for years.
While you think you are working through the whole debt settlement process, your unhappy lender may turn around and sue you. If they win in court, they could garnish your wages and put a lien on your house…all the while you are paying that third-party debt settlement company. Call your lender and try to work out a new payment schedule before you get behind.
If you insist on working with a debt settlement company, do not do business with a company that charges any fees before it settles your debts, according to the FTC.
If you insist on working with a debt settlement company, do not do business with a company that touts a “new government program” to bail out personal credit card debt, according to the FTC.
If you insist on working with a debt settlement company, do not do business with a company that guarantees it can make your unsecured debt go away, according to the FTC. Nobody can make your debt go away except the lender or a bankruptcy judge.
If you insist on working with a debt settlement company, do not do business with a company that tells you to stop communicating with your creditors, but doesn’t explain the serious consequences, according to the FTC. For many average consumer, they are really over their heads when it comes to working with a third-party debt settlement company.
If you insist on working with a debt settlement company, do not do business with a company that tells you it can stop all debt collection calls and lawsuits, according to the FTC.
If you insist on working with a debt settlement company, do not do business with a company that guarantees that your unsecured debts can be paid off for “pennies on the dollar,” according to the FTC. It is a pipe dream!
Before you seek debt settlement options, consider what other options you have. What about taking a second job and using the money to pay off the debt? Or what about borrowing money from a rich relative that you could pay back on different terms? What about really, really cutting your costs? For example, if you commute to work by automobile and it is costing you hundreds of dollars a month, why not turn that commute into a little profitable business with a ride-share program where you save all of the money your are spending on commuting that you can then put toward serious debt repayment. Another alternative as mentioned above is to contact your lender to work out a different repayment schedule. Your lender is a business person whose main concern is to get his or her money back. If they can work out a deal with you, they will. But then you must live up to the new terms so be very careful and think through the new program before you say that you will do it.
Before you sign up for a debt settlement service, the FTC warns that the debt relief company must give you information about the program:

Price and terms: the company must explain its fees and any conditions on its services.
Results: The company must tell you how long it will take to get results — how many months or years before it will make an offer to each creditor for a settlement.
Offers: The company must tell you how much money or the percentage of each outstanding debt you must save before it will make an offer to each creditor on your behalf.
Non-payment: If the company asks you to stop making payments to your creditors —or if the program relies on you to not make payments — it must tell you about the possible negative consequences of your action, including damage to your credit report and credit score; that your creditors may sue you or continue with the collections process; and that your credit card companies may charge you additional fees and interest, which will increase the amount you owe.The debt relief company also must tell you that:
The funds are yours and you are entitled to the interest earned;
The account administrator is not affiliated with the debt relief provider and doesn’t get referral fees; and
You may withdraw your money any time without penalty.

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