After the subprime crisis, it is the credit card debt crisis that many financial analysts and economists are predicting to hit the country. Many average Americans seems to be using their credit cards for all the wrong reasons, falling prey to fancy deals and getting into debts.    

In case you are one among those trying to get out of a messy credit card debt trap, here are some tips that might help:

1.    Try balance transfer to consolidating debts to 1 or 2 cards If your debts are spread across different cards try consolidating those into one or two cards. Most credit card companies allow balance transfer and offer incentives for the same. Assuming your credit card issuers A and B charge 16% interest and a Card B offers you the balance transfer option at a rate of 8% and an introductory period of 4 months. It means you can transfer the debt of say $2,000 in Card A to Card B. The sum of $2,000 will attract an interest rate of 8% between say October-January. You can use this period to manage your debts better. If you still haven’t settled the debt, then February onwards the balance amount to be paid will attract an interest of 16%. Card companies allow balance transfer of up to 80% of the credit limit. So if you have a credit limit of $10,000 in your credit card A, then you can transfer up to $8,000 to your card B.

2.    Restrict the number of credit cards If you have credit cards with varying interest rates, then after settling all the debts, cancel those cards which have a higher interest rate. A maximum of two credit cards are sufficient to meet more than your basic needs. It is also advisable to avoid using your credit card until you have settled your debts spread across your cards.

3.    Try breaking your savings account to repay If you have some money in your savings accounts, you can try breaking that to settle the debts. Of course it hurts to break the savings, which you have planned to use for your wedding or your child’s education. But instead of having to live with mounting debts, harassing creditors, bad credit ratings and stress, it is better to forego the interest on your savings account and repay your credit card debt.

4.    Get a home equity loanIf the roof above the head is the entire asset you have, you can try considering a home equity loan to pay off your card dues. The debt on your house may attract an interest rate of 6-7%, which would be way lower than an 18% charged by your credit card issuer.  Two things to note here: ·         If you haven’t paid your mortgage fully then you cannot take a loan on your house. ·         Once you have paid off the credit card dues, finish off the loan on your home equity loan as soon as possible. Else you will end up with both home loan and credit card dues to be paid.

5.    Confront your creditor with your problem Okay, you neither have savings to speak about or a house to bail you out. The next best option would be to talk to your creditor and explain the situation. Tell him that you lack resources to repay the huge debt and the mounting interest. Ask for renegotiation of interest rates or extension of repayment period. Apprise them of your situation honestly and let the creditors believe that you are serious about repaying your debts. Chances are that your creditors will lend an ear to your pleas and help you settle your debts.

6.    File for bankruptcy This is the last resort, if you have exhausted all options to settle your debts. When a customer files for bankruptcy, the credit card companies are required to write off all or most of the debt. But before you jump to the option think of the consequences. First you should qualify for bankruptcy. The rules for declaring bankruptcy have become tougher over the years. The filing of bankruptcy will remain in your credit record for 10 years impeding almost all chances of acquiring credit, loans and mortgages of all kinds in that period. In addition you have to cough up a hundreds of lot of dollars to filing for bankruptcy, your attorney fees and so on.