A recent report by the Consumer Financial Protection Bureau found that from 2007 to 2010, debt regimes – which can be financially risky – increased. Credit counseling, a debt relief option that keeps consumers in good standing with their creditors, has been turned down.

Before making a moment of crisis decision, understand how to think through debt relief options.

You’ve likely heard the radio commercial or maybe received a robocall promising a solution to your debt that can reduce your debt by 50 percent or more.

Debt settlement demands are as high as the industry’s marketing budget. But these programs aren’t all they are – and the ads gloss over the drawbacks.

With debt settlement, you stop paying creditors and instead move your money to the debt settlement company, which keeps it in an escrow account. Then, usually after several months, the company contacts your creditors and haggles over a deal in which the creditor accepts less than originally owed. In this waiting period between the freeze on payments to creditors and the settlement of the debt (which is not guaranteed), things can go wrong.

“There’s no such thing as free lunch,” says Glenn Downing, a Miami certified financial planner. “There are really some significant trade-offs in debt settlement. I would try to make it a last resort.”

Debt settlement risks include:

If you stop making payments to creditors and default on debt, you can be sued by the original creditor or a collection company buying the debt. Until the debts are paid off, you run the risk of being sued.

As a result of a tax bill: The IRS considers any amount of debt paid as taxable income.

Save Less Than Advertised: Debt settlement firms often charge a fee of around 30 percent of your original debt balance. So even if you settle for 50 percent of your original debt, after paying the billing company fee, you won’t be as far ahead as you might expect. In addition, if you stop making payments, your debt can continue to grow as default interest and interest are added to your balance.

Credit Damage: Missing payments and late payments are among the worst things you can do to your credit. These marks will stick on your credit reports for seven years, making you look risky to future creditors.

What if there was a way to combine multiple credit card payments into one at a lower interest rate – while maintaining your reputation with your creditors?

That’s what loan counseling from nonprofit credit counseling agencies offers. These organizations have agreements with many credit card companies that offer a lower interest rate in exchange for regular monthly payments over three to five years to pay off your debts.

But many consumers are unaware of these benefits, according to a 2018 Harris Poll commissioned by Money Management International, a nonprofit credit counseling agency. It found that 62 percent of the 2,012 respondents did not know that a credit counseling service can combine multiple credit card debts into one payment. And 73 percent weren’t aware that the credit counseling service offered lower interest rates on credit card debt.

Credit counseling has disadvantages. You usually need a steady income to qualify and if you miss a payment the contract can be terminated so you can take care of it yourself.

But for the long-term health of your credit profile, credit counseling is the clear winner. This debt relief instrument ensures that consumers are in good standing with creditors as they meet their obligations. The only harm to their credit profile would come from the closure of credit accounts, which some agencies require.

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