Incomes can fall for a whole host of reasons be they loss of job due to redundancy, reduced working hours, partnership separation or long term illness but the obligations to pay off previously borrowed money continues and takes an ever larger slice of the monthly disposable income.

The key to debt management is to catch it early and take decisive action. All too often, however, people ignore the early warning signs and try to muddle on by using other sources of credit to pay previous loans. This principle soon starts to spiral, especially when combined with any change in income for the worse.

Early action includes radical changes to monthly spending patterns - giving up on some of the standard of living items such as eating, entertaining and maybe holidays. Alternatively, some will look to supplement their income by taking a second part time role such as bar or restaurant work, freelance consulting or other jobs using their labour or skills. Unless you can free up or earn enough income then more direct action is required.

If the situation is not too serious, consider a debt management plan. Here, you work systematically with all your creditors to seek a reduction in monthly payments to help you get back in control of your spend. Most, if approached early enough, will consider a change by extending the loan period over which you can repay the balance. Look to pay off the most expensive forms of credit first. These tend to be credit and store cards with mortgage (although perhaps the largest monthly payment) being the cheapest. By looking at changing the mortgage repayment period, you may free enough income to repay those expensive cards and loan balances early.

If you cannot get back in control through a voluntary debt management programme, then you may need to consider an IVA (Individual Voluntary Arrangement). This is a formal agreement between you and your creditors where they agree to receive set, reduced repayments off your loan where part of the balance is written off. To be agreed, you need the approval of 75% of the creditors but once in place, and provided you keep up with the repayments, the creditors can take no further action against you in recovery of your debt. There are many organisations that specialise in arranging IVA's and their fees vary so make sure you do a thorough search and comparison before choosing any particular company. At the end of the IVA, the remaining debt balance is written off and you effectively have a clean sheet start. Your credit record will be affected and you may find it more difficult to raise credit in the future, but the fact that you have demonstrated an ability to make repayments for a fixed period will count a little in your favour.

If the use of an IVA does not get you back in control or you cannot get creditors to agree to one, then the final, and more drastic solution, is bankruptcy. This is where a creditor petitions the court to have you declared bankrupt and seize all or any of your assets for disposal in payment of the debt you owe. Once declared bankrupt, there are restrictions on both the occupations you can hold and the credit you can borrow. There is a formal publication of your bankruptcy and your credit history will be adversely affected for many years to come. However, once the bankruptcy is discharged (which may be in as little as a year) then you effectively get a fresh start - although raising credit may be either more expensive or difficult or both.

Bankruptcy is a last resort state to be considered after a debt management plan or IVA have failed. The consequences are far reaching and long lasting and although much of the stigma of being declared bankrupt has passed, it still carries negative connotations for many employers. Free advice on debt issues is available at any Citizen's Advice Bureau.

Browse a range of useful websites about Bankruptcy.