In the current economic downturn that hit the world during the past couple of years, millions and millions of people have ended up in financial difficulty, being unable to pay their debts. Many eventually faced bankruptcy with the accompanying loss of assets they had worked for all their lives.

Why do people end up in financial dire straits? Sometimes it’s easy to pinpoint: the loss of your job or the loss of a life partner that earned most of the money can certainly disrupt the financial affairs of any family.

Often it’s not as easily explicable as that. A major culprit in this regard is credit card debt. During the good times, credit card companies give out cards left right and center without always taking into account the ability of the card owner to pay back that debt. When the person then becomes unable to meet his monthly repayments, they are very quick to take legal action against him or her. This in turn has a negative effect on his credit rating.

If you are one of those people who find it increasingly difficult to meet your monthly debt repayments, whether they are credit card debt or personal loans, there are a number of things you can and should do.

Your very first step is to draw up a monthly budget. This is not even negotiable. Start by writing down every single cent you spend during a particular month. At the end of the month you will have a list of expenses and you will be able to clearly see where your money went. That alone could be all you need to salvage your credit record. Once you realize that you are spending a high percentage of your budget on unnecessary things like cigarettes, chocolates and visits to the local casino, you will know what the right thing is to do: get rid of these types of expenses and rather use the money to pay your debts and save a little for the future.

If you have analyzed your budget and there is really nowhere you can save money any longer, you could opt for debt consolidation. There are two different ways you can do this, both of which a debt consolidator can assist you with. The first type is where you make an arrangement with your creditors to pay them off a smaller amount every month. This will unfortunately most likely have a negative impact on your credit rating.

The second option is to take up a debt consolidation loan. What you will essentially be doing is to replace a number of small, high interest rate loans with one large, lower interest rate loan. Your total monthly installment will be less than that of the current individual loans. This way you can prevent your credit record from being harmed. A rule of thumb is to keep the term of this replacement loan is short as humanly possible. It’s not a good idea to replace a 12 month credit card debt with a 20 year loan. You don’t really still want to be paying off today’s chocolates 20 years from now!

An honest and well-trained debt consolidator will study your budget with you and recommend an option that will suit your particular situation the best. Whatever option you decide on, it’s very important to stick to any agreement reached and to meet your monthly commitments from now on.