Members of the Credit Card Cure Co-op often ask (entry 1/15/10):

Q: Will Debt Settlement hurt my FICO score?

A: Yes. All the missed payments will be reported to the credit bureaus. In addition, your account may get charged-off, which also is a negative. In my book I describe smart ways to minimize the damage and 7 Credit Repair Habits to speed FICO recovery. But, it often takes 6 months or more to settle and another 12-18 months to recover to a strong FICO score.

So, if your FICO score is critical to you in the next 12-24 months (security clearance, upcoming credit need, etc.) this may not be a good alternative. Conversely, many of us blindly pay homage to the FICO-god without an objective evaluation of how much that mindset is costing us.