I have covered this in a previous blog entry and elsewhere on my site. It bears repeating, and an article on MSN money has repeated it. "Debt Settlement: A costly escape"
To quote from the article, "Debt settlement is in fact, a perfectly legal solution for consumers who are in deep and seeking an alternative to bankruptcy. But having a debt settlement company do the legwork for you is fraught with risk, not to mention outrageous fees".
Some risks: the creditor won't settle, the creditor sues you, your credit rating drops, the creditor settles for an amount you may have been able to achieve simply by asking, you over pay the debt settlement company ( some charge 10% set up fee, monthly fees and 25% or more of the savings"), the debt settlement company keeps your monthly payments to pay their non-refundable fee first, the IRS treats the forgiven debt as income.
I could go on...but won't.
It is enough to say that some people should try to settle the debt, and some of those people should use help, BUT everyone with serious credit card debt should have their situation fully analyzed by a licensed attorney who is experienced in bankruptcy, and debt settlement matters before they proceed.