If your credit-card debt is in the thousands, you're far from alone. According to the Nilson Report, the average credit-card debt for households with at least one card hit $10,679 at the end of 2008. There is good news, though; there are ways to legally eliminate this debt. Now for the bad news: It won't be easy, it might not be quick and it might hurt your credit score.

Bankruptcy

By declaring either Chapter 7 or Chapter 13 bankruptcy, you will legally eliminate your credit-card debt. However, you should consider both of these options only as a last resort. That's because bankruptcy destroys the health of your credit report. A bankruptcy stays on your credit report for 10 years. You'll find it difficult to obtain mortgage or car loans with a bankruptcy on your record. When you do find a lender that is willing to loan you money, it will undoubtedly charge you sky-high interest rates. In a Chapter 7 bankruptcy, your debts, including your credit-card debt, are wiped out. However, you may lose many of your personal possessions, including your home, when you declare Chapter 7. Chapter 13 bankruptcy is a less severe move. Under this version, a court sets up a payment schedule that allows you to pay back your creditors over a longer period of time. The goal is to leave you with payments that you can financially handle each month. Remember, though, that both Chapters 7 and 13 bankruptcy leave you with a big blemish on your credit report.

Home Equity Loans

According to indexcreditcards.com, the average interest rate on consumer credit cards hit a whopping 16.36 percent in early December 2009. At the same time, the average interest rate on a $30,000 home equity loan stood at 8.32 percent, according to Bankrate.com. Because the interest rates are so much lower, many consumers facing high credit-card debt take out home equity loans to pay it off. This is a less financially damaging solution than declaring bankruptcy. However, there are some potential problems. First, if you are struggling to pay your credit-card bills, the odds are good that you have some dings on your credit report. This will make it difficult for you to receive the best interest rates on a home equity loan. Second, if you fail to make your payments on a home equity loan, you run the risk of losing your residence.

Debt Consolidation Loan

You've probably heard the radio ads from debt-consolidation companies promising to eliminate your debt in days. Don't believe the hype. It takes time to eliminate your debt, even if you are working with a debt-consolidation company. Debt-consolidation companies take all your debts and combine them into one large debt. This allows you to make one payment every month instead of several. As you are making this payment, your creditors are not allowed to call you. There are some dangers here, though: Many debt-consolidation companies charge fees based on the percentage of debt you owe. They then collect this fee from your earliest payments. This means that during the early stages of your debt-consolidation plan, fewer dollars are going to your creditors while more are going to your debt-consolidation company. The debt-consolidation business also attracts its share of unsavory firms. Some might take your fee and then do nothing to help you reduce your debt. If you are considering a debt-consolidation loan, make sure to ask any company with which you are considering working how it charges, what it charges and what guarantees it makes that it will provide the service it promises.

Going on your Own

The safest and most effective way to eliminate your credit-card debt is to change your spending habits. Once you stop using your credit cards recklessly, you can slowly begin to pay down your debt. Of course, this is no simple task. Fortunately, there are legitimate non-profit credit-counseling agencies that can help you learn how to be a more responsible consumer. Visit the website of the National Foundation for Credit Counseling. This agency will help you find a credible credit counselor in your area.

Source:

National Foundation for Credit Counseling: Find a Counselor Now

Bankrate.com: Compare Home Equity Rates

Indexcreditcards.com: Credit Card Monitor