How debt negotiators can crush your credit
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"A charge off is the biggest negative red flag on your credit report," Richard says. "It means a lender lost money doing business with you."

So even if a debt negotiator is able to lower a credit card balance as promised, you could be stuck with a dismal credit record for more than seven years.

Here's another thing to worry about. If a creditor refuses the settlement amount offered by a debt negotiator, you could be sued.

Just ask Raquel Avila, of Millbrae, Calif. She signed on with Debtco in August 2001 for help with $10,000 of debt spread over five credit cards. The card debt was left over from her university days.

"I was just making the minimums. I foresaw myself paying this debt forever, paying the minimum. That's why I went to them," says Avila, 28.

She paid Debtco a $1,000 upfront fee and agreed to $250 monthly payments. Debtco would also take a 25 percent cut of any forgiven debt.

She stopped paying her creditors and sent payments to Debtco instead. She was told she would be debt-free in three years.

Last July, one of her creditors sued her for nonpayment.

"I ended up getting summoned in July and I got scared," Avila says.

"I was never told this could happen. They said there are some creditors that want their money right away and that I should talk to a lawyer."

She ended up settling the disputed debt in November.

"At the beginning I didn't feel it would hurt my credit this much," Avila says. "I feel like it's hurting me more now."

After 19 months with Debtco, she still owes several thousand dollars on three credit cards.

"They're basically telling me I need to send them more money," Avila says. "I don't really foresee myself getting out of this, this year."

Steve Dahl, a senior vice president of sales and marketing at Debtco, says only a small percentage of Debtco clients get sued and most settle the suits out of court.

"Probably less than 9 percent of our consumers ever get sued," Dahl says. "That's a reality. We put that in our contract. We always let people know that's a possibility."

Getting angry calls from collection agencies is another unpleasant reality associated with debt-negotiation programs.

"This is boot camp to avoid bankruptcy," Dahl says. "It's tough and it can be nasty."

A long and expensive road
Resolving debt through a debt negotiator is a long and expensive road. Even if all goes well, you'll be left with a banged-up credit record and you may owe taxes on any debt that is wiped away. This article from Bankrate.com explains the tax consequences of forgiven debt.

Not all debt negotiators are on the up and up. Some consumers pay high fees and never get any of their debts settled through a debt negotiator or debt-settlement company.

"There are nonprofits and for-profits in this business with various degrees of credibility," Wilkman says.

The latest debt negotiator in the hot seat for allegedly shoddy business practices is Briggs & Baker, based in Santa Clarita, Calif. The California Attorney General filed a lawsuit against Briggs & Baker on Feb. 19.