If an individual can no longer handle his debt, a credit counselor can make an in depth study of his financial situation and suggest enrolling in a debt consolidation service or a debt management plan. In a debt consolidation service, the counselor negotiates with creditors for lower interest rates, waiver of fees and penalties and bargains for apportioning a larger amount of the debt repayment towards the payment of the principal amount. A new repayment plan is developed on terms favorable to the customer, so that debts can be paid off faster without the burden of high interest rates.

Upon agreement of the new terms and conditions of repayment, multiple debts are consolidated into equal monthly installments. The customer deposits this amount with the credit service who then makes payments to individual creditors. Once enrolled in a debt consolidation service, an individual has to pay the entire amount owed to the creditors.

Debt consolidation services are offered by profit and non-profit organizations. The terms of repayment are the same for both. A legitimate organization charges a flat monthly fee on every individual debt account handled.

It is important to keep track of how the consolidation service operates to make sure that each account is properly closed before the consolidation begins, and the reduction in the rate of interest and waiver of certain penalties has been granted. Also, it is wise to check whether the amount deposited under the debt consolidation service is properly disbursed to the concerned creditors.

A legitimate organization will not handle any account that is six months old and is charged off. It will make it a point to inform the customer of how long it will take to pay off individual accounts, and may offer the customer the option to select the debt accounts to be handled by the organization.

A debt consolidation service has some negative points. An individual cannot have any credit for the first year, and creditors may put an unfavorable remark on the debtor