Scam artists have always had an affinity for the weakest and most vulnerable; in this type of scam they take advantage of the current economic situation to make money from the many desperate people trying to climb out from under a growing mountain of debt.

When someone finds they're struggling or unable to pay their current bills they're often advised to seek credit counseling. Legitimate credit counselors can help borrowers reduce and manage their debt but beware companies that claim they can rid you of your debts. These phony programs seem “too good to be true” because they are.

Scam No. 1--Debt Elimination

Operators of these scams advertise on the Internet, TV, radio and in newspapers. Sometime they even hold seminars that guarantee they can eliminate, terminate or cancel debts, especially credit card obligations. Usually, you're asked to pay an upfront “membership,” “donation,” or “service fee” which can range from several hundred to thousands of dollars.

Scammers claim they'll cancel your debt using various schemes that could involve ‘secret laws', illegal contracts and arbitration. In the end many victims wind up losing more than their upfront money; some become the victims of identity fraud while others are sued by the credit card companies for repayment. Those who are lured into these schemes often lose more money than they originally owed.

Scam No. 2--Debt Reduction

In this scam, credit ‘counselors' claim they have special relationships with creditors that allow them to negotiate your debt and reduce the amount you owe by 50% or more. You're told to stop making payments to your credit card company and instead send the money to a debt management firm that will hold it in trust to pay creditors.

Meantime, while they're working out new details of your debt, they tell you to “rest assured that calls from collection agencies will cease.” Unfortunately, the phone doesn't stop ringing and collection efforts sometimes get even worse. These plans are hoaxes and debts aren't lessened. Ultimately, some borrowers are forced to file for bankruptcy.

The Real Deal

Fortunately, there is some real help out there for people struggling to manage their debt. Trustworthy debt counselors do exist and can help stop collection calls and reduce interest rates and late and over-limit fees. They can repair your credit score or reduce the amount of your debt. They can help you with a budget and provide money management advice. Credit counselors can also help you pay down your debt through a repayment program that could reduce your monthly payments and other fees.

How to Find a Reputable Credit Counselor

Check the Yellow Pages and you'll see there are all kinds of credit counselors out there. Shop around for a Certified Credit Analyst (and if you don't feel comfortable with a particular agency trust your gut and look for someone else). Check with the National Federation of Credit Counselors (NFCC) for some excellent advice on finding a reputable credit counselor.

If you are hiring a credit repair company to assist you, make sure they are accredited, licensed with the state, and have been in business for at least five years.

Consider Bankruptcy

One final word - don't believe all your debts are just going to “disappear.” There are no “magic wands.” If restructuring your debt isn't going to solve your problems and your current situation is out of control, consider talking with a bankruptcy attorney and discuss the possibility of filing a Chapter 13 (re-organization.) This won't eliminate your debt but it can make it more affordable. The stigma of bankruptcy will last no more than 3 years and can allow you to restore your credit faster than simply ignoring your debt.