Debt consolidationFinancial Dictionary -> Debt -> Debt consolidation
If somebody finds themselves in a desperate situation and cannot pay off their debts they may seek credit counseling and debt consolidation services. The company will then acts on the behalf of a debtor and contact each creditor explaining their client's situation. New repayment terms are then often negotiated to a realistic level than can actually be paid. (There is no point pursuing a debt that will never be paid off). This may include literally lowering the monthly repayment amount (although terms will be extended), lowering interest rates, giving a longer amount of time to make the payment or other similar terms to make it easier.
The process of the actual debt consolidation is not as always clear cut and as safe as first explained. What a debt consolidation company does is take on your loans and debts then offer you a new loan from them, so now you are only in debt to them. To secure this loan (ensure they get paid) they often require some form of collateral, for example your house. If you fail to pay them back then they are entitled to sell your property and get their payment through the sale. You get any surplus back.
A debt consolidation company usually makes their profit because your new loan to them is extended and will result in a higher total repayment than if you stayed with the multiple outstanding loans. The help comes in because they turned it into one easy to manage loan with more time to pay it back.