Instead of writing a separate check for the minimum amount to all of your creditors, all of that unsecured debt (debt that doesn't have a sellable item, like a house or a car, attached to it) can be turned into one payment — usually at a much lower interest rate — that you can more easily manage each month. This is what debt consolidation is all about.

Debt consolidation is not a loan, nor is it a forgiveness of your debts: You do pay off all your debts in due time. But debt consolidation often offers a lower interest rate than you're currently being charged, and if your debts are with collection agencies who expect immediate payment, you may be able to take more time to pay those debts. The best part? The harassing phone calls and letters will stop immediately.

Usually, you sign an agreement in which you allow your credit counselor to contact your creditors, let your counselor submit a budget on your behalf, agree to make your new payment on time (or have your payments automatically withdrawn from your checking or savings account), and agree not to get into further debt.

If your creditors agree (and they usually do), you are usually in a position to be free of these debts in three to six years, provided your budget allows for this. Your credit counselor will put you on a tight budget until your debt is paid off.

Using an Accredited Agency

Most, but not all, debt consolidation is performed by credit-counseling agencies. Before you sign on with any agency, check with the Council on Accreditation of Services for Families and Children, the National Foundation for Credit Counseling, and the Better Business Bureau.

Remember that not all credit counselors are the same! Credit card companies have always appreciated credit-counseling services that help people figure out how to pay back their debts, even if it takes them a long time. This is because when cardholders file for the alternative — bankruptcy — the credit card companies often get no payment at all. So, to help these nonprofits, credit card companies sometimes donate a percentage of the card balance to the credit-counseling service.

Some entrepreneurs, hungry for the fee that credit card companies give for credit counseling, have started for-profit businesses that advertise as credit counselors. But these companies often push the consumer to pay the credit card companies first — or worse, will work only with debts owed to creditors that pay them — which may not be in your best interest.

Examining the Fee — if Any — for Debt Consolidation

Most nonprofits charge a nominal fee for debt consolidation. Expect this, but do not pay more than $25 per month for this service. The money goes to a good cause — paying the agency's considerable expenses — and because of your lower interest rates, you'll still save a bundle of money.

Reviewing the Terms of Your Agreement

Be sure you read the terms of your agreement carefully. You'll usually be expected to make your monthly payment on time — with no exceptions — and you'll also agree not to get into any more debt. This is a bit of tough love because, ultimately, you can't break your cycle of debt if your credit-counseling agency bails you out and then you get right back into debt again. Because they're going to all the trouble of intervening on your behalf, you have to agree to change your lifestyle. It's a tall order, but it's the only way most credit-counseling agencies will work.

Consolidating Your Debts on Your Own

Another way to consolidate your debts is to use one of your credit cards to pay off all your other debts. Many credit cards even provide checks or special forms that help simplify this process.

Under most circumstances, however, consolidating this way — on your own and without the guidance and support of a counselor — isn't a good idea. Because you won't have signed an agreement not to rack up any more debt, you may be tempted to use your now-paid-off credit cards to spend more money, making your situation worse.

In addition, even if one of your credit cards is offering a low interest rate to transfer the balances from your other cards to theirs, the rate is usually good only for a limited amount of time (like six months) and may skyrocket after that. Many credit cards also charge a transaction fee to pay off the balances of other cards. A credit counselor can usually arrange for an even lower interest rate for your debts — and it won't expire.