NEW YORK — Reduce your debt by 60 percent! Stop collection calls! Be debt-free in 12 months!

The siren song of debt settlement firms is getting harder to ignore these days, especially if your finances are out of control or creditors are knocking at the door.

Tempting as their ads may be, however, debt settlement firms can leave you in an even worse mess. Many are outright scams.

"If a company's making big promises, it should raise red flags," said Alison Southwick of the Better Business Bureau. "Getting out of debt is not easy. It takes time."

Still, it's no surprise that people are vulnerable to promises of relief. It's probably why complaints against debt settlement firms rose by almost 19 percent in 2008 over the previous year, according to the BBB.

Before you pick up the phone, here's what you need to know.

The premise behind debt settlement firms is that they'll negotiate with lenders, usually credit card companies, to whittle down your balance. You pay the negotiated amount in a lump sum. Some firms promise to lower your debt by as much as 70 percent.

The incentive for lenders is that they salvage at least part of what they're owed.

Prices vary, but a firm might charge up to 20 percent of however much you owe. So the fee for a $10,000 loan might be $2,000. Fees are usually demanded upfront before a settlement is delivered.

Apart from the fact that a settlement may never be secured, the offer is riddled with traps. But more on that later.

You should know that the BBB automatically lists all debt settlement firms under its new "inherent problem" category, meaning it has concerns about the entire industry.

Companies can apply to be removed from the category by demonstrating they deliver on their advertising claims. No firms have been removed yet, although some are in the application process.

BETTER ALTERNATIVES

The bottom line is that there's no need to hire anyone. You can negotiate a settlement directly with your lender.

"They have a complete picture of your finances. They will know if you're a candidate," said Gail Cunningham of the National Foundation of Credit Counseling, a nonprofit group based in Silver Spring, Md.

Before you even reach that point, however, be sure to exhaust all other options. A negotiated settlement comes with serious consequences and should be a last resort.

If you feel overwhelmed, ask for a free consultation at a nonprofit credit counseling agency. You may be able to develop a budget that lets you meet your debt payments if you work with a counselor.

You can search for a local agency on the Web sites of the National Foundation for Credit Counseling (www .nfcc.org) or the Association of Independent Consumer Credit Counseling Agencies (www.aiccca.org).

If a tightened budget doesn't do the job, a debt management plan may be in order. This is when you and your lender agree to more manageable repayment terms, usually over a longer period.

The credit counseling agency will likely charge a monthly fee of about $20 to work out a debt management plan, but it can be waived if it's unaffordable. The plan will be noted on your credit report, but it won't hurt your credit score.

You could also try negotiating a loan modification directly with your lender. Banks have gotten more flexible about adjusting terms in the past year or so. A modification can include a lower interest rate, the elimination of fees or a reduction of the monthly payment.

If you decide a debt settlement is your only option, call your creditor directly. Some credit card companies refuse to work with settlement firms, Cunningham said. So if you hire one, you might be throwing your money away.

THE REPERCUSSIONS

Hiring a debt settlement firm won't stop the collection calls. Even as a firm tries to negotiate, collection notices can still arrive, interest and financing charges can rack up, and your lender might even decide to sue you.

Aside from the fees you pay, the total amount of your debt is likely to grow too if a settlement isn't reached.

And it usually takes about three years to complete a debt settlement program, said David Leuthold, executive director of The Association of Settlement Companies, an industry group of about 200 debt settlement companies. That's because clients typically don't have enough money to pay the settlement amount demanded by the creditor right away. So the debt settlement firm will run interference while the client saves up that money.

The strategy might not make sense to a lot of people. But Leuthold said people nevertheless use debt settlement firms because they're daunted by the prospect of dealing with creditors on their own.

It's not all roses even if you do get a settlement. It will be marked on your credit report for seven years and can hammer your credit score.