By Elliot Raphaelson

In my 10 years as a certified county court mediator in Florida, I've participated in all sorts of cases, from evictions and personal injury suits to contract disputes. These days, due to the poor economy, the majority of cases I deal with are credit-related, and most involve credit cards.

Here's a common scenario:

A man loses his job, or his family is facing unmanageable health care bills. He decides to pay for food and the mortgage first. As a result, he can no longer make his usual monthly credit card payments. He sees ads from debt consolidators and debt "repairers" claiming to have easy solutions to his debt problems. All he has to do is stop paying his creditors and start sending monthly payments to a consolidator.

Is this a good choice? I don't think so. There are many problems with the majority of these contractors. Debtors who use them generally pay high fees, and may shoulder higher interest rates than they're currently paying. More importantly, there's no assurance that the consolidator will actually pay the creditors, and state and federal laws that police such programs are insufficient to protect debtors.

Here's a typical case I was assigned:

A Florida small business owner was sued by a law firm specializing in debt acquisition. The firm had purchased the man's debt for pennies on the dollar from a credit card company that had already written off the debt. The initial amount was $1,000 before the man stopped making payments several years earlier. The principal amount had now climbed to $2,500 due to interest charges (as high as 30 percent, plus various monthly fees). Moreover, additional expenses such as "court costs," which can be $200 or more, and legal fees, which can reach $500, were also tacked on.

The debtor, who contracted with a debt consolidator, was under the false impression that part of his $250 monthly payment was going to his creditors. When he came to court, he discovered that none of his monthly payment had gone to creditors. He'd never received statements itemizing how the payments had been allocated, so he had no defense. It was my job to present him with the following unpleasant options:

1) Enter into a monthly payment plan (that he couldn't afford) with the law firm that now owned his debt.

2) Enter into a default judgment. (This would limit his ability to borrow and jeopardize assets he owns. His salary could also be garnished.)

3) Take the case to a judge, which would make sense only if he could demonstrate that he didn't owe the money, or if the law firm couldn't prove the money was owed. (This option could result in additional legal costs.)

4) File for bankruptcy. (This option should be considered only after discussions with an experienced bankruptcy attorney.)

Frankly, if he had used a competent financial counselor from the start, or negotiated with his creditors directly, he would have avoided a trip to court and gotten to a better outcome.

In my experience, the vast majority of people who contract with debt consolidators/debt repairers don't succeed in paying off their debts. Not only do these contractors charge high fees; they also operate without any apparent obligation to report to clients how their payments are allocated. I always ask the debtor being sued if he had received a monthly statement from his contractor summarizing which debtors received payments, and for how much. I've never had a defendant tell me he received such statements.

If you're having trouble paying your bills, you're better off either dealing with creditors directly or consulting a reliable credit counselor. If you do feel you need help from a counselor, a good place to start is the National Foundation for Credit Counseling, (www.nfcc.org; 1-800 388-2227), or the Association of Independent Consumer Credit Counseling Agencies (www.aicca.org (866-703-8787).

Struggling with debt can be frightening and humiliating. Your first priority should be to avoid making your problems worse by using desperate options or falling for "easy" solutions. Educate yourself about your options and persevere; you'll find a way to resolve your problems and get on with your life.

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Personal Finance - Debt Consolidators Just Make Financial Problems Worse

© ELLIOT RAPHAELSON. DISTRIBUTED BY TRIBUNE MEDIA SERVICES, INC.