We’ve all seen the commercials. We know in a hazy way that something called our credit report compiles our personal credit history into a reference number, or credit score, used by financial entities as a benchmark of “risk.” We may even understand that there are good and bad credit scores. But most people don’t know that credit scores in America average around the mid- to high-700s. Fall below that and you are in danger of not being able to borrow money, buy a car, or get a mortgage. Which is generally the time — when you get an application back with “denied” stamped on it in red — that most people have to face the fact that their debt has reached a point that it must be resolved. But how? There are many viable avenues for debt resolution.

Using a Debt Settlement Arrangement

In debt settlements or arbitration, professional debt mediators negotiate with creditors to secure their agreement to accept a lesser sum than the actual amount owed by the debtor and to consider the debt fully resolved. By agreeing to forgive a portion of the debt, the creditors at least clear part of the amount off their books and avoid what would likely be a complete default otherwise.

There is normally an enrollment period during which payments are made to the debt settlement company and placed in a trust. The negotiation process is begun when a sufficient amount of money has accumulated. The goal is to reduce the overall debt while preserving the debtor’s good credit reputation.

As a general rule, debt settlement companies will only take on individuals who owe $10,000 or more. The company’s fee is collected at the time the debt is resolved. The arrangement is completely legal, all terms must be secured in writing, and both parties must signify their agreement with valid signatures.

Filing for Bankruptcy

Bankruptcy proceedings in the U.S. have been on the rise since 1980. Over the past five years, an estimated 2 million consumers have instigated bankruptcy proceedings to extricate themselves from debt. Most fall between the ages of 35 to 38. More than half of those who move forward with bankruptcy are facing crushing medical debt due to the high cost of health care in this country. The process is a legal, and ethical solution to large debt.

The procedures for filing are under the auspices of the U.S. Bankruptcy Court and proceed according to a set body of federal law. The court has discretionary powers to specifically structure individual bankruptcy proceedings, which may last for as little as four months or as long as five years. Due to the highly legal and process-oriented nature of this debt solution, the assistance of a lawyer will be required.

The most basic form of bankruptcy is called Chapter 7 and provides for the liquidation of all assets to resolve debt. Certain items necessary to maintain basic life necessities are exempt from liquidation, including home, automobile, personal clothing, and other items specified by the court. There are many law firms that do nothing but bankruptcy proceedings and have all the resources to put the process in place quickly and smoothly.

Seeking Credit Counseling

Credit counseling offers an educational component to debt resolution by helping the consumer to avoid falling into the debt cycle again. Whether online, by telephone, or in person, the counselor works with the client to develop a program that addresses the specific debt issues.

For instance, they might recommend a consolidated debt management plan in which a single payment is made to the credit counseling agency itself, with disbursements made to the creditors. Normally the agency will have negotiated with the creditors to arrive at lower monthly payments, the waiver of fees, and a lower interest rate. All these steps speed up the debt resolution process.

In the initial counseling session, consumers must supply all the information necessary for the counselor to draw up an accurate debt profile. One or more plans may be presented as options for debt resolution. The average time debts are resolved via the credit counseling process is three years.

Each of these methods involved initiative — you have to get yourself together and seek the resolution. And they involve discipline. The key elements in consolidating debt regardless of the method chosen are lowering interest rates, eliminating fees, and if possible creating a single payment to be met each month. But without going through what is a painful process now, you may be faced with a lifetime of high payments, crippling interest, and debt that prevents you from achieving any of your goals — or dreams — in life.