Many Americans have a large amount of never ending credit card debts. However, financial situation can be kept under control by following many strategies.

Income vs. expenditure

     The first such strategy is to work out debt to income ratio which is being adopted by credit card issuers. This method would help in figuring out the problem

     To determine the debt to income ratio, all the monthly expenses as well as monthly loan repayments including credit card monthly payment are taken into account which represent monthly debt. Then monthly income, which is nothing but the sum of pay checks along with the 1/12th portion of yearly income such as bonus is arrived at. Now, monthly debt payment is divided by monthly income which gives rise to the debt to income ratio.

Credit Card Boon or a Ban

     If the percentage as worked out above is 35% or less then credit card is a boon .This means that the debt burden is under control. However, if the ratio is 35% to 50%, then it shows the danger signal. At this stage, credit card is a ban. If the ratio is 51% or higher, definitely it is a critical situation and immediate steps to be initiated to quickly reduce the debt, of course it is difficult to do so

Ways and means to reduce debts:

No further debts:

     The first step is to stop using the card and start using money to repay the already built debt. However, this is not an easy option

Loss of creditworthiness

     If allowed by law, personal bankruptcy can be declared which is the last resort. It will definitely destroy the creditworthiness which in turn will prevent getting future loans.

Consolidation of debt

     A good way to save the credit rating is to obtain a debt consolidation loan at lower rate of interest for wiping off the existing credit card debt repayable in easy monthly installments.

Compromise with Creditors

     Another way is to negotiate with the creditors for Debt settlement by paying off the debt in a lump sum at a discount. However, this will damage the status and credit report.