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I have been considering entering a debt settlement program to get rid of my credit card debts. One drawback is I have not been late in any of my payments for more than 5 years even though the debt is pretty high (more than $40,000). My credit score is OK, around 630. I am wondering if lowering my debt by half, as the settlement companies advertise, is worth it because I know it will damage my credit score for a few years. Would I be better off in five years or would it be better to just keep paying my bills on time?

-Ricardo

Certified Financial Planner Shomari Hearn, who is client service manager with Palisades Hudson Financial Group in Fort Lauderdale, advises against entering a debt settlement program. It is costly and may leave you further in debt than you are now.

The typical program requires you to stop paying your credit card bills. You are directed to make monthly deposits into a special account you establish with the debt settlement company instead. Once the account has an adequate balance, which can take many months, the company will try to negotiate lump-sum settlements with the credit card companies for a fraction of your outstanding balances.

Your credit card balances will increase during this period as interest and late payment penalties continue to accrue.

There is no guarantee the settlement company will be successful in negotiating a significant reduction in your debt. And, the credit card companies may file suit against you. If they win a judgment, they may garnish your wages or put a lien on your home, at which point a poor credit score will be the least of your concerns.

The fees charged by debt settlement firms can be very expensive. Some debt settlement companies charge as much as 15 to 20 percent of the credit card balances due – and collect that upfront. Some charge a hefty fee every month until the program is completed.

You’ll owe taxes, too, because cancelled debt is considered taxable income, and the IRS won’t waive any of the bill unless you’re insolvent.

Although this may not be what you want to hear, Hearn advises you to continue to pay your credit card bills on time. As long as your budget permits, make more than the minimum required payments each month.

Better yet, use your savings to pay down credit card balances if such resources have not been exhausted.

Most importantly, tear up your credit cards.

If you still think you need to do something about the debt, consider negotiating with the credit card companies directly instead of entering a program. You'll save on fees and you may be as effective at reducing your debts as the claims advertised by the settlement companies.

Keep in mind, however, that creditors generally won't discuss settlements with consumers unless they're at least three to six months behind on their payments.