The state of Texas is going after debt-settlement outfits that claim they can negotiate your debt down to just pennies on the dollar or wipe it out altogether.

The firms in question include BC Credit Solution, FH Financial Service, Four Peaks Financial Services and DebtORSolution.

"The defendants unlawfully misrepresented and overstated the nature of their services," according to a press release from the Texas attorney general's office.

Most debt-settlement outfits ask their customers for an upfront fee, plus a monthly retainer. Their strategy is to get you to stop paying on your bills; the basic idea is to make the credit card companies so desperate that they'll settle with you. The reality, however, is that you wind up damaging your credit.

The debt-settlement outfits have supposed money-back guarantees, but this is really just a one-way street with you giving them money -- not the other way around.

Is there a kernel of truth somewhere in the claims of the debt-settlement companies? Yes, they may be able to do some negotiating on your behalf, but in the meantime your credit will be trashed.

Here's another gotcha: You'll get a 1099 form for any money that a creditor forgives. It's considered "phantom income" by the IRS.