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Maxed-Out Credit Card? Next Steps to Take

If you’re bumping up against your credit limit, you have what’s called a maxed-out credit card. When this happens, it can impact your overall credit health. Don’t panic. Be aware of the consequences of maxing out your credit card and plan to take action.

What Is a Maxed-Out Credit Card?

A maxed-out credit card is when you’ve reached — or even tried to exceed — your credit limit. An example explains this pretty quickly.

Suppose you have credit card with a $3,000 credit limit, and your balance is $3,000. That’s maxing out your credit card. If you aren’t careful and miss a payment, your finance charges could push your balance beyond $3,000 and over your limit.

Gazing at the balance of your maxed-out credit card for the first time can be a terrible shock. But you’ll survive. The most important thing right now is knowing what to do if this happens to you. At the very least, make your minimum payment and make it on time.

Consequences of Being Maxed Out or Over the Limit

Being maxed out or over-limit on your credit card can be expensive. First, there could be an over-limit fee. Over-limit fees are governed by law and cannot exceed the amount by which you’ve gone over your credit limit. If you’re over-limit by $100, your card issuer can’t charge you more than $100. In practice, though, your fee is likely to be much lower, in the $25 to $35 range, and your issuer might not charge any fee at all.

In addition to over-limit fees, being maxed out or over your limit can lead to other negative outcomes.

Your Credit Score May Drop

Your credit utilization ratio is the amount of credit you’ve used compared with the amount of credit you have available, and it accounts for 30% of your credit score. When you max out a card, your utilization ratio for that card is 100%. To protect your credit rating, the Consumer Financial Protection Bureau recommends that you keep credit utilization under 30%. It’s important to know that credit utilization on your credit score has two components: your overall utilization and the individual utilization of each credit card. You’ll be penalized for going over-limit on one card even if your overall utilization is low.

Your Purchase Could Be Declined

It’s unpleasant to have your credit card denied when you’re alone, not to mention if there’s a line of shoppers behind you. But if your purchase takes you over the card limit, that could happen.

You can opt to allow over-limit purchases with some credit cards. Avoid this, however, unless you have to cover an emergency, like repairing your car to get to work. Going over-limit because of excessive spending will just get you further into debt. When you’ve maxed out a card, the last thing you need is a bigger balance to pay off. For your own good, put away your credit cards for now and begin thinking about a debt-reduction strategy.

Your APR Could Increase

When your credit score is low and your utilization is high, credit card issuers worry that you’re in financial trouble. They regularly check your credit score to assess your risk level, and a dropping score is a red flag that you might be experiencing financial distress.

This could cause your credit card company to raise your annual percentage rate (unless you’ve had the card for less than a year). Going over-limit may also trigger a penalty interest rate, which is a temporary increase in your APR that kicks in if you break the rules of your credit card agreement.

[Read: Best Credit Cards for Fair Credit.]

Your Minimum Payment Gets Higher

Your minimum is usually based on a percentage of your balance. A high balance means your minimum payment will increase.

If you are having trouble making the minimum payment on your credit card bill, call the credit card company, explain your hardship and discuss a payoff schedule, says Erika Safran, a certified financial planner and wealth adviser based in New York. Ask if you can enter a hardship program temporarily. “They may reduce the amount owed, but also freeze the card,” Safran says.

Safran recommends contacting your card issuer before you miss a payment. If you’ve maxed out your credit cards and miss even one payment, your credit score will likely head south.

You Pay Interest on a Growing Balance

When you carry a balance, you’re charged compound interest, aka “interest on interest.” This means your balance will get bigger over time unless you take steps to pay it off. Fortunately, there are many debt-reduction strategies to help you do that.

Stop Using Your Credit Cards

No one likes this first step, and that’s understandable. It’s a major change in your lifestyle. But you can’t get out of credit card debt if you’re still busy increasing your burden. And besides, your maxed-out card will likely be denied if you try to use it.

Even if you have low balances on other credit cards, avoid using them until you’re out of debt. Maxed-out cards and increasing balances are proof that you’re not managing your debt effectively. Eventually, you’ll hit a wall and won’t be able to afford the minimum payments.

If you’re having problems paying your credit card bill, contact your issuer and ask to speak with the hardship department. These departments are set up to offer temporary relief to those who can’t pay their bills. The remedies offered vary by issuer and by your specific circumstances. Just honestly explain your situation and ask for help.

[Read: Best Secured Credit Cards.]

Set Yourself Up for Success

There are some basics when it comes to managing your money, what you might call your financial foundation — because it’s like the foundation of a house. You can’t build a house on a shaky foundation. In personal finance, a shaky foundation leads to all kinds of problems, including debt. A solid foundation involves having a budget, tracking your spending and paying all of your bills on time.

This isn’t as daunting as you might think. There are lots of free apps and personal finance websites to choose from. Pick one you feel comfortable with. Then, enter your budget numbers and start monitoring where your money goes.

Slash Your Budget

Now you’re on the move. Whether you have maxed out only one card or five, you have to pay more than the minimum payment on your credit card balance to make progress.

Decide what expenses in your life are “needs” versus “wants.” Needs include items such as rent payments and cellphone service. You probably have other expenses that are more of a want than a need, such as a weekly pedicure.

The money you save can be used to pay down your credit card debt. If it helps, remember that this is a temporary situation. You’ll have the freedom to choose how you spend your money when you’re out of debt.

Your budget cuts can be temporary, or you might learn that your priorities have changed when it comes to really living within your means. Don’t take away everything you love. If you look forward to your latte, keep your latte. But you’re going to have to cut something else in the budget to pay for it.

[Read: Best Low-Interest Credit Cards.]

Choose a Debt-Reduction Strategy

There are many different strategies for getting rid of your debt, and there really isn’t one method that everyone should use. You need to pick the option that’s best for your situation and that works with your credit score.

Balance Transfer Credit Card

It’s possible to have a mountain of credit card debt and still have good credit. If you have an excellent credit score, consider a balance transfer credit card. You’ll get a 0% APR for a period of time, usually 12 to 21 months.

This gives you a chance to pay off the balance during the interest-free introductory period. Figure out what your monthly payment has to be so you’ll have a zero balance before your new APR kicks in. Just so you know, most of these cards charge a balance transfer fee between 3% and 5%.

Let’s say your credit card debt is $5,000, the balance transfer fee is 3% and the 0% balance transfer rate lasts 18 months. You must pay back $5,000 plus the $150 transfer fee.

Monthly payment: $5,150 / 18 = $268.11.

If you consistently make this payment each month, you’ll pay off your debt during the intro period. If your credit score isn’t high enough for a balance transfer credit card, consider getting a debt consolidation loan.

Debt Consolidation Loan

If you still have a fairly good credit score and owe debt on two or more cards, a debt consolidation loan is an option. You won’t get a 0% interest rate, but there’s a good chance your loan’s rate will be lower than the APRs on your credit cards.

The good thing about this loan is that it simplifies your life. Your balances are now wrapped into one loan with a fixed monthly payment, which can lower your stress level. The best part? You generally end up paying less interest on your debt.

Do-It-Yourself Debt Reduction Options

If you’re on your own to pay off debt, consider one of these DIY solutions.

Debt avalanche method. Make a list of your credit cards, starting with the highest APR and ending with the lowest APR. Your first target card is the one at the top of your list. Then you work your way down the list until you pay off the card with the lowest APR. With this strategy, you save more money because you pay less interest.

Debt snowball method. Make a list of your credit cards from the smallest balance to the highest balance. Your first target card is the one with the smallest balance. Then you work your way down the list until you pay off the card with the largest balance. With this strategy, you get a quick win by paying off a small balance. Many love this method for that reason, but keep in mind that this strategy ignores interest rates, so you could end up paying more interest.

Debt blizzard method. Combine both methods. Pay off the smallest balance first (snowball) and then switch to paying off the card with the highest APR (avalanche). This strategy gives you an adrenaline boost quickly, but then you focus on paying less interest.

The right strategy is the one that you’ll stick to. So give it some thought and decide what works for you. Be persistent and have a little patience, and you’ll reclaim your financial freedom.

[Read: Best Credit Cards for Bad Credit.]

Get Credit Counseling

If you’re using your credit cards to survive month to month, consider talking to a credit counselor. Start your search with the National Foundation for Credit Counseling. Act now before it gets worse.

Living paycheck to paycheck is stressful. Talking to a credit counselor can help you figure out how to break the cycle you’re in. And to ease your mind, just talking to a counselor won’t lower your credit score. Your credit score could drop with a debt management plan. But stay focused, and your score will bounce back in time.

More from U.S. News

How to Transfer a Credit Card Balance: 5 Simple Steps

Snowballs, Avalanches and Other Wintry Ways to Chill Your Credit Card Debt

What Happens When You Have a Maxed-Out Credit Card?

Maxed-Out Credit Card? Next Steps to Take originally appeared on usnews.com

Update 01/29/25: This story was previously published at an earlier date and has been updated with new information.

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