It may be no fault of your own. Perhaps you had unexpected medical expenses which have run up your debts. You may have lost your job or your spouse might have lost theirs.

However, often our debts have piled up because of injudicious spending or over optimistic projection of further income. Did you really need to buy that second car? Did you go on expensive vacations? Have you indulged in shopping sprees? If your behavior in regards to money has got you in this mess, then you need to change it. Otherwise even if you get yourself out of their current mess then you will create it anew.

Taking stock

So before you take any action you need to take stock of your current situation. A good hard a sober look is necessary before you can make any kind of realistic plan.

Net worth – Assets and liabilities

The first thing to look at is your current situation in terms of what you own and what you owe. What your own are your assets and what you owe on your liabilities. However, many people are confused about what an asset really is.

Robert Kiyosaki in his book Rich Dad Poor Dad defines an asset as something which is producing income. It is not producing income but it is an expense then it is a liability. Many people think of their home as an asset, but Kiyosaki regards that as a liability because it is an expense. Your pension fund, which Is growing in value would be an asset.

Do I have a realistic budget?

The next part of taking stock is to take a close look at your income and expenses. In particular you need to ask yourself what part of my expenses are absolutely essential in which expenses could be cut down.

What is my credit rating?

Before you try to negotiate any kind of relief then you really need to know what your credit rating is. You can apply to the credit rating agencies for a free report. It is very important to improve your credit rating as far as possible. This will affect the interest rate that you could get in any consolidation loan for example.

The higher your credit score, the more leverage you have to bargain for better terms, especially if you indicate you're considering switching to another card with lower rates. In February 2009, the average APR was 8.29 percent for consumers with top credit scores of 760 to 850, and 12.76 percent for those with prime scores of 660 to 759. For consumers with subprime scores of 500 to 659, the average APR was 19.90 percent, while punitive rates imposed on those with black marks such as late payments averaged 27.76 percent.

There are credit repair agencies that will assist you for a fee. However, before you apply to any agencies it would be a good idea to take a look at self-help methods such as Credit Repair Magic.

Do I have zombie debts?

There is a statute of limitations on how long of a debt can be before it is uncollectible by law. However, some collection agencies buy up old debt at a very low rate and then try to collect it. If these are in fact debts that are past the statute of limitations then you should refuse to pay any amount in the hope that the collection agency will go away.

What are my options?

Getting advice

Getting advice is most useful and a credit counselor can guide you in the right direction. Please see the article on debt advice.

Negotiating with creditors.

Until recently banks and credit card companies were unwilling to negotiate their rates and settlements with their customers. However, with the mounting rates of default this has changed.

Selling off assets

You might consider selling off assets such as your second car or other valuables to reduce your debt load and make it more manageable. In any event if you go into bankruptcy you may be required to sell off these things anyway.

Consolidation loan

A consolidation loan where you take out either secured or unsecured loan to pay off all the existing debts may be a viable option. Check out my article on debt consolidation.

Debt Relief Plan

The government has encouraged debt relief programs. This is explained in my article on debt relief programs

Bankruptcy – a last resort

Bankruptcy must be considered to be a last resort after you have exhausted all the previous auctions. Your debt relief counselor or debt relief plan will advise you on this.