A major reason why consumers in the red continue to be duped by debt collectors, consolidation firms, and credit repair companies is that far too few people know what the actual difference is between these organizations, and government agencies and debt groups make the mistake of bunching them all together in consumer publications and alerts. To be clear, here is a brief description of the different subsets that fall underneath the debt industry umbrella and some signs to watch out for with each:

Credit & Debt Collection

Junk Debt Buyers

These types of companies purchase delinquent or "charged off" debt for pennies on the dollar and then try to collect the outstanding balance for a profit. They buy these debts in large portfolios with thousands of other debts. Also referred to as "bad debt buyers", you will know your debt is being collected by them when you see on any written communications that you a owe a company that's different from the original creditor. Debt collection letters must refer to a) the original creditor, b) the actual creditor if different, and c) the collection agency collecting the debt).

What to Watch Out For:

1. You may not actually owe the debt - If it's a debt that you don't remember owing, ask for validation that you do in fact owe it. To have this right honored legally, you must dispute the validity of the debt within 30 days of your first receiving the letter.

2. The statute of limitations may have expired - If you have not paid the debt in several years, then it is possible that the collection agency cannot pursue legal action to force you to pay the debt. If the statute of limitations has in fact expired or is near expiration, do not even suggest that you will pay the debt because it can revive the time period, and you can become legally liable again. (And definitely do not make a payment because this can revive it as well).

3. They may list it multiple times on your credit report - If you only owe one debt, then it does not make sense to allow them to report it several times and drag down your credit score further. If you see the same debt being reported by several different junk debt buyers, dispute all of them with the credit bureaus, and of course, beware that you don’t pay off each of them when you do not have to.

Traditional Debt Collection Agencies

These have been around for some time, so most people are familiar with what they do. Regular debt collection agencies are assigned debts by original creditors to recover as much as possible from the debtor. In turn, the collection agency receives a percentage of what they are able to collect. They are given a range of what are acceptable payment terms by the original creditor and will typically accept settlements in the range of 30-60% of the outstanding balance.

What to Watch Out For:

Harassing phone calls and other aggressive collection activity - Junk debt buyers are guilty of this as well, but the point is you should be aware of your protections under the Fair Debt Collection Practices Act (FDCPA) . Multiple phone calls in the same day are even considered a violation, and by sending a written communication requesting that the collector to leave you alone, they are legally obligated to stop calling you.

Debt Consolidation Companies

Credit Card Counseling

These types of organizations are typically non-profit and work with credit card companies to lower your interest rates and possibly waive any fees or over the limit penalties. By using their service you can potentially be credit card debt free in as little as 4 to 5 years.

What to Watch Out For:

Non-profits that do not live up to their non-profit credit status - Some common warning signs:

a) They offer no educational services, budgeting help, and immediately suggest that you enroll in a debt management plan (DMP) without fully understanding the nature of your debt problem;

b) They insist that you make a "voluntary" contribution equivalent to your first monthly payment in order to use their services. Generally a suitable set up fee for this type of service is no more than $39 and per month charge of $35 is a realistic one.

The credit counselor has no accreditation - Most reputable debt counseling services will at the very least be a member of an industry trade organization like National Foundation for Credit Counseling , Association of Independent Consumer Credit Counseling Agencies , and the American Association of Debt Management Organizations (AADMO).