Answer: If you come across a company touting a new federal law that makes it easier to settle debt, rest assured: It’s a scam. There is no such law, and these outfits are capitalizing on people’s confusion about changes in credit markets (for another example, see below).

If you’re struggling with credit card debt, first make an appointment with a legitimate credit counselor, preferably one affiliated with the National Foundation for Credit Counseling. These counselors can review your situation and see if you could qualify for a debt management plan, which would allow you to pay off your debt over five years or so, typically at a reduced interest rate.

Also, make an appointment with a bankruptcy attorney to discuss your options. Credit counseling is designed to steer you away from bankruptcy, but you may be better off in the long run by filing. Meeting with both a credit counselor and a bankruptcy attorney will give you a better idea of your alternatives.

Some people are able to settle their debts for less than they owe, but many who try wind up getting sued by their creditors. The debt settlement field is filled with scam artists who charge huge upfront fees and then fail to settle any debts. If neither credit counseling nor bankruptcy is a good option for you, you can ask the bankruptcy attorney for a referral to one of the relatively few settlement companies that’s legitimate and may be able to help you.

Answer: You can’t fix your credit until you fix your finances, and your first step is deciding what to do about your cards.

If your credit is “messed up” and your credit scores are low, you probably can’t consolidate this debt into a lower-cost loan—which is often the best option for people with good credit, since credit unions currently offer 3-year debt consolidation loans with rates under 10%.

A visit with a legitimate credit counselor (you can get referrals at www.nfcc.org) will determine whether you have enough income to pay off your cards over five years or so through a debt management plan, which typically lowers the interest rate you pay.

You also should visit a bankruptcy attorney to see whether filing for Chapter 7 liquidation is an option. If not, you may want to talk to the attorney about settling your debts for less than you owe.

Once you’ve visited both the credit counselor and the bankruptcy attorney, you’ll be able to make more informed decision.

After the debt is paid, erased or settled, you can begin to rebuild your credit. Until then, your efforts won’t come to much, since your inability to pay your credit cards will continue to erode your credit scores.

Answer: Debt settlement means you’re paying less than you owe — and creditors really don’t like that. Debt settlement can trash your credit, which is why it isn’t a good option if you can find other ways of dealing with your debt.

If your interest rates are relatively low and you can easily make your minimum payments, your best bet is to simply pay off the debt on your own, throwing as much money as possible at your highest-rate card while paying the minimums on your other debt. Once your highest-rate debt has been retired, you can apply that payment to your next highest-rate debt, and so on until you’re debt free.

Or you can transfer your debts to a fixed-rate personal loan and pay that off over time. Many credit unions offer three-year personal loans at rates of 10% to 15% to people with good credit.

If you’re struggling to make your minimum payments, you should arrange two appointments: one with a legitimate credit counselor (you can get referrals from the National Foundation for Credit Counseling at www.nfcc.org) and another with a bankruptcy attorney.

The credit counselor may be able to put you on a debt management program to pay off your debt at lower interest rates. Credit counseling is a neutral factor in credit scoring formulas — neither helping nor hurting — but your creditors may report you as late, which could hurt your scores.

Bankruptcy would really trash your scores, driving them down into the 500s. But it could wipe out your debt and give you a fresh start if you aren’t able to pay your bills.

What you want to avoid, if possible, is raiding retirement funds or home equity to pay credit card debt, particularly if bankruptcy may be an option. Retirement funds are protected in Bankruptcy Court and so, in many cases, is home equity.

People would try to sign up for the counselors’ debt management programs, only to discover they couldn’t make the payments credit card companies required and their only real option was bankruptcy.

The problem has become more critical as more people sink deeper into debt and often have less income to pay what they owe.

Last fall, the leading credit counseling organization–the National Foundation for Credit Counseling–formerly called on creditors to take additional steps to make debt management plans more affordable.

Today, the NFCC announced the creditors had come through. All top 10 of the nation’s credit card issuers agreed to provide additional relief to troubled borrowers by waiving fees, lowering interest rates and accepting smaller minimum payments.

What that means for the typical credit counseling customer who owes $24,000 on credit cards is a payment as low as $420 a month, versus the $540 that would have been required earlier.

If you’re having trouble making your minimum payments and trying to avoid bankruptcy, a call to an NFCC-affiliated agency may be in order. But also discuss your situation with a bankruptcy attorney to see if starting fresh may be a better option.

For more, read:

• The consumer’s guide to credit counseling
• Get a credit card reprieve
• 15 steps if bankruptcy is inevitable

The first knew his credit wasn’t great, but thought he’d see if BofA would lower his 25% rate anyway. Not only did the bank say no, it lowered his credit limit by $7,000.

The second asked BofA “what I could do in these difficult economic times to reduce my interest and/or payments” on a credit card and a line of credit, according to a post on the Your Money message board.  Instead of a concession, the reader recently received letters from the bank saying the accounts had been frozen. “I was very surprised and called Bank of America again regarding the letters,” wrote the reader, who wasn’t in financial distresss. “Their response was that since I called to ask them for help it showed I was in financial hardship and froze my accounts.” 

Bank of America spokeswoman Betty Reiss said it’s not the bank’s policy to freeze or shut down accounts simply because customers ask for an interest rate cut. But she sidestepped my question about whether such requests invite the bank to more closely scrutinize the accounts. Bank of America is more closely monitoring all its accounts these days, she said.

Here’s what you need to know about asking your issuer for a lower interest rate:

You have the best shot if your FICO scores are 720 or above. Credit card issuers are trying to shed high-risk customers but woo (and retain) low-risk ones.

Don’t cite “hard times” unless you’re facing them. If you have good scores, you want to argue from a position of strength–”I have great credit and can easily take my business elsewhere.” If you talk about economic distress, you’ll set off red flags and alarms.

If your scores aren’t great but you’re not in distress, consider other options. Rather than asking for concessions from your issuer, talk to your local credit union about a fixed-rate debt consolidation loan. Consider a 401(k) loan only if your job is rock-solid.

If you are facing distress, get help. Your issuer may offer you a modified repayment plan or temporary forbearance (read this excellent CreditCards.com story for details), but your accounts will almost certainly be frozen and perhaps shut down. Credit counseling is another option that will have the same result. Bankruptcy is a last-resort option that may be your only way out if your debt is truly unpayable; consult an experienced bankruptcy attorney fordetails.

Answer: How nice of your husband’s family to decide how you should spend your money. But just because you appear to be better off than they are does not mean you are obligated to support the family spendthrift.

The situation might be different if your brother-in-law’s life or health were at stake, or if he suffered an unexpected financial blow. In that case, you might want to honor your spouse’s sense of obligation (while perhaps persuading the other siblings to chip in).

In reality, however, what we have is a grown man who can’t figure out how to pay an $11,000 bill without pleading with his siblings for a bailout.

Your spouse should recommend he talk to a legitimate credit counselor about a debt management program that could lower his interest rates. He can get a referral from the National Foundation for Credit Counseling at www.nfcc.org.

If you do lend the money, you of course should formalize it with a written agreement and collateral. But understand that regardless of the precautions you take, the chances of his actually repaying the loan are slim.

You also shouldn’t imagine that the shame of the unpaid debt will deter him from asking for more money the next time he gets into trouble. This man never learned self-reliance, and you won’t teach it to him by giving him more money.