Now that the holidays have past and the credit card bills are about to roll in, you might be worried about excessive debt you can’t afford. If you’re considering debt settlement, you should rethink that strategy for many reasons.

Here are four ways that debt settlement can burn you.

1. Your Credit Score Tanks

Once you sign up with a debt settlement company, it will usually insist that you to stop paying your bills for a few months—sometimes as long as six months or more. At the end of that period, the debt settlement company goes to your creditors and tries to negotiate settlements on your behalf.

They figure that after a few months of not getting paid, your creditors will “play ball” because they’ll be happy to get some money, instead of no money.

If only it were that easy.

The problem with this is strategy is twofold. First, you wind up with serious black marks on your credit reports and you decimate your FICO credit scores. After all, just one late payment can drop your FICO credit score by 50 points or more. Imagine the hit to your credit rating when you’re three to six months late paying multiple accounts.

Another reason your credit takes a hit with debt settlement is that, when it is “successful,” your creditors agree to accept less than the full amounts owed (even though they will consider the balance as paid).

The creditors often then turn around and report to the credit bureaus that your account was “Settled” or “Paid by Settlement”—which still tarnishes your credit records with Equifax, Experian and TransUnion.

2. The Risk of a Lawsuit or Court Judgment

There’s also no guarantee that the methods used by debt settlement firms will work. Instead of caving in to a debt settlement company’s demands to let you pay, say, $30 for every $100 you actually owed, creditors may just decide to sue you, get a judgment against you, or garnish your wages.

Needless to say, if any of these events happened, your financial situation and/or your credit would be worsened, not improved.

3. High Debt Settlement Fees

Using many debt settlement firms can also be awfully expensive. Most debt settlement companies charge you in one of two ways:

•    a flat fee, which often runs $1,000 or more and is based on how much money the debt settlement “saves” you by negotiating with your creditors; or

•    a percentage fee, with fees of 15 to 20% of your total debt being typical

So for those with $10,000 in debt, fees would run about $1,500 to $2,000 for a three-year debt settlement program. Why would you want to pay such high fees if you’re already thousands of dollars in debt?

Besides the fees cited above, it’s not uncommon for debt settlement firms to impose added monthly charges on their clients. These fees can be as low as $20 a month or as high $90 or $100 a month, depending on the company in question.

Over time, therefore, consumers may shell out several thousand dollars—on top of the initial fees charged—when they opt to go with a debt settlement firm.

4. That Big Tax Bill

One final drawback of entering into a debt settlement plan is that you will have to pay taxes on the amount of money you saved.

For instance, if your debt was $10,000 and the settlement plan says you only have to pay $3,000, you will be required to pay taxes on the $7,000 you saved. If you are in the 25% tax bracket, you’ll have to fork over $1,750 to the IRS, because the government deems your $7,000 in savings as income.

A Better Alternative: Credit Counseling

Clearly, there are many pitfalls associated with debt settlement programs, from unexpected taxes to high fees and damage to your credit rating.

Rather than use a debt settlement company, a better strategy is to first try to negotiate directly with your creditors. If your efforts fail and you can’t keep up with your bills, then it’s time to enlist the help of a credit counseling agency/debt management firm.

Debt management programs are totally different from debt settlement plans. For starters, debt management plans have far fewer and lower fees. And enrolling in a debt management program, also known as a DMP, shouldn’t backfire on you legally, tax-wise or from a credit standpoint—as long as you continue to pay your bills on time.

When you enroll in a debt management program, your credit files do include a notation that you are participating in a DMP. However, taking part in a debt management plan does not adversely impact your credit rating, nor is it a factor in how your FICO score is calculated, according to executives from Fair Isaac Corp., the creator of the FICO score.

Your credit rating also doesn’t suffer because you are paying back everything you owed in a typical debt management program. The cost savings come primarily from having late fees eliminated, and interest rates lowered—two key factors in helping you become debt-free fast.

If you’re looking for assistance managing your credit and debt in 2014, one helpful resource is The Association of Credit Counseling Professionals, or ACCPros. You can call the toll-free ACCPros Locator Line at (800) 635-0553 to speak with a certified credit counselor at an agency licensed/registered in your state.

Lynnette Khalfani-Cox is a personal finance expert and co-founder of the free financial advice site, Follow Lynnette on Twitter @themoneycoach and Google Plus.