Next to bankruptcy, debt settlement can seem like the lesser of two evils. There are serious downsides to debt settlement that you should be aware of though. To negotiate a debt settlement, you first have to go several months without making payments on your credit cards. During this time, you open yourself to the risk of creditors filing a lawsuit against you. Skipping payments will also severely damage your credit score.

I would not recommend going into debt settlement on cards you are still current on. If you are already more than 90 days past due, it might be a viable option. But you should talk with a business attorney who can give you appropriate advice tailored to your situation. Remember that even if you do successfully negotiate a debt settlement, you must report the canceled portion of your debt to the IRS, who will tax you on it.