In a recessionary period like the one we are experiencing today there is a natural increase in personal financial turmoil.  One of the most common troubles in personal finance today is a high rate of debt and the costs associated with servicing such debt at very high interest rates, in particular credit card debt.  People with high outstanding balances in their credit cards find themselves in a bind as they struggle to pay the monthly finance charges in addition to reducing the principal amount outstanding.

If you have been struggling to pay off your credit card bills in the last few years, you may be in an even tougher financial position today.  As home prices drop, your ability to use home equity as collateral for consolidating debt is diminished or eliminated altogether.  As the economy falters and unemployment rises you may even find yourself without a job, or working odd jobs to make ends meet.  This situation leads to a sense of desperation that may encourage you to seek any help you can get.  Unfortunately, there are many scammers out there seeking people in this position to take advantage of their sense of desperation, making the situation even worse.

Some debt-reduction and counseling firms promise to help you reduce or eliminate your debt for a hefty fee.  In the process, they provide advice that may actually work against you, negatively impacting your credit score and increasing your cost of borrowing.  The USA Today reported one such case where a victim paid $3,000 to Financial Solutions, a company that advised the victim to stop paying credit card bills and demand formal proof of the debt.  As it turns out, this firm is being indicted for allegedly being part of a scheme involving income tax conspiracy, tax evasion and wire fraud.

As a result of following the firm’s advice, the victim’s debt has actually grown.  The credit card company has written off the debt resulting in the victim’s credit record suffering considerable damage.  Stephen Cox, a spokesman for the Council of Better Business Bureaus warns against the potential problems associated with the advice of certain unscrupulous debt-reduction counseling firms:

“Usually, the first form of advice some of these companies offer is to stop paying your debt, which is, quite frankly, the absolutely worst thing you can do.”

The Federal Trade Commission records show that consumers filed 3,092 complaints about debt management or credit counseling in 2007.  In cooperation with local agencies in 22 states, the FTC has announced a legal crackdown targeting 33 operations that allegedly claim to be able to remove negative information from consumers’ credit reports.

If you are having problems managing your debt, your best option is to contact a reputable non-profit credit counselor.  Any firm that offers you something that is “too good to be true” should raise a red flag.  These offers include things such as guaranteeing removal of your unsecured debt with no negative impact to your credit score or promises to pay off your debt with pennies on the dollar.  Any request for payment of high monthly fees or demands to pay a percentage of savings is suspicious.  Also, don’t follow the advice to stop paying your debt or to stop communicating with your lender.

Before engaging a debt counseling firm that you have never heard of before, do your homework.  Contact the Better Business Bureau to find out if there have been any complaints against the firm.  Alternatively, get in touch with the Federal Trade Commission at 877-FTC-HELP or visit www.ftc.gov.