When settling credit card debt, watch out for scams

— -- You snicker when you hear an ad for a pill that will vaporize belly fat. You scoff at suggestions that you can work at home and earn more money than Warren Buffett.

But when you hear about a program that promises to significantly reduce your credit card debt, you wonder: Do these debt-relief services really work?

Debt-settlement companies typically try to negotiate with credit card companies to reduce the amount you owe. Rising unemployment has led to a sharp increase in the number of consumers who are behind on their payments, creating a receptive audience for their services. But like a weight-loss product that causes you to gain 10 pounds, some of these programs could leave you even deeper in debt.

Federal and state regulators have brought a number of actions against debt-relief companies for misleading and deceptive practices.

Last week, Chase Card Services, a division of JPMorgan Chase, said it will forgive the debts of more than 13,000 credit card holders who were allegedly defrauded by a Florida-based group of debt-settlement companies.

The settlement stemmed from a lawsuit brought by Florida Attorney General Bill McCollum against the companies. The lawsuit alleged that customers were told to stop sending monthly payments to their credit card companies and send the money instead to the debt-settlement firm, which promised to reduce debts to pennies on the dollar. Instead of sending the money to credit card companies, the lawsuit alleged, the group used it to pay attorneys' and processing fees.

For some borrowers with large debts that can't be repaid within three to five years, a reputable debt settlement company may offer an alternative to bankruptcy, says Gerri Detweiler, credit adviser for Credit.com, a consumer site. Legislation enacted in 2005 has made it more difficult for some individuals to file for Chapter 7 bankruptcy, which eliminates most debts. Chapter 13 bankruptcy requires you to agree to make up to five years of court-ordered payments, and you may be required to surrender some assets.