So long debt settlement, hello bankruptcy?

Ball and chain attached to man's legs

When millions of people are experiencing financial hardship, you can bet on someone trying to take advantage.

That is exactly what happened a few years ago when debt settlement became the hot relief service offered to people struggling to pay their bills.

The process, which can reduce the amount owed to creditors, is considered a last ditch option for consumers facing bankruptcy.

When the full impact of the recession hit consumers, credit card delinquencies hit record highs. This created a perfect environment for companies offering debt relief services such as debt settlement.

The high demand for debt relief services triggered an explosion in companies offering debt settlement. Unregulated, many of these companies took advantage of the situation, receiving payment from clients without delivering results.

Consumer complaints prompted the Federal Trade Commission in 2010 to issue regulations designed to increase transparency and prevent companies from collecting fees before they settle or reduce the debt. The Association of Settlement Companies, an industry group, claims its membership has dropped by more than 60% as a result.

With more than half of the companies offering debt settlement no longer in business, what options remain for consumers dealing with a financial hardship?

Before you consider bankruptcy, talk to a credit counselor.

Good credit counselors can help you cut your monthly payments, but won't reduce what you owe. And there are some bad actors out there. Find out how to spot and ditch them.

We recommend a member of the National Foundation for Credit Counseling, the nation's biggest and oldest credit-counseling organization.