Steps to Take When You've Maxed Out Your Credit Cards

Take steps to get your debt under control and repair your credit

Maxed-out credit cards can negatively affect your credit score, not to mention damage your financial situation for years to come. 

If you have been relying on your credit cards to pay your monthly bills, there likely will come the point when you max out all of your available credit. It can be a serious problem because you will have to manage monthly debt payments on top of your regular expenses.

If you are close to maxing out your credit cards, you need to address the problem as quickly as you can. Here's what to do if you've reached the limit on all your credit cards. 

Set Up a Bare-Necessities Budget

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If you find yourself in this situation, you'll need to cut out any unnecessary spending until you have cleared up a good portion of your debt. To do this, you'll need to set up a bare-bones budget. 

The most important things you need to continue to cover are your rent or mortgage payment, your utilities, food expenses, and transportation costs. You may need to cut out entertainment expenses and your clothing allowance for a short period of time. 

Prioritize What You Will Pay

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If you are in a large amount of debt and have maxed out your credit cards, you may be faced with the choice of which bill to pay. This means you'll need to prioritize your payments. 

For example, choose to pay your mortgage and student loan bills over your cable, streaming subscriptions, and internet. In fact, you should consider cutting the latter to save money, if you can create an internet hot spot with your cellular phone. Similarly, consider canceling gym memberships, and stop going out to eat. Your groceries should be the basics and should not include extravagant items. You can also cut back on alcohol and going out with friends. 

Find Extra Money to Pay Down Your Credit Cards

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If you are in this situation, it may be because you don't make enough money to survive ​each month, and you will need to look for a long-term solution to the problem. It may mean that you need to go back to school or find a job that uses all of your skills.

You may need to find a second job to help you clean up your debt. If your budget would work without all the extra debt payments, then a second job is a good fix for the problem, and you can quit once you are out of debt. You can also hold a yard sale or sell items online to raise money to pay off some of your debts.

Create a Debt Payment Plan

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You should create a solid debt payment plan that allows you to focus your money so you can pay off your debts more quickly. First, you will need to catch up on all of your payments, and then you should apply any extra money you have to one debt at a time to clean it up more quickly.

Some people work from the smallest debt to largest, in a process called the debt snowball method; other people work from the highest interest rate to lowest with a method called the debt avalanche. You determine which one will help you the most. When you finish paying off one debt, you transfer all the money you were paying to the next debt on your list.

Contact Your Creditors

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Contact your creditors and ask for a lower interest rate. If you cannot make a payment one month, you can contact them to see if they are willing to negotiate different payment terms. When you make these types of arrangements, you often close the accounts, and you will no longer be able to use the credit cards, even though you still need to make monthly payments until they are paid off.

If you have a student loan, you can put it on deferment for up to a year to give you a chance to try to get your other debt under control. If you qualify, you may want to transfer your credit card balances to credit cards with lower interest rates, but you must stop using your other credit cards first if you want this to work in your favor. Remember, don't close your credit cards until you have paid them off, as this can negatively affect your credit score. 

Credit Counseling and Debt Settlement

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Credit counseling and debt settlement are options if you are having a difficult time paying off your debt. A credit counseling service will help you set up a budget, and usually takes the equivalent of one monthly payment from you to give to your creditors. They will negotiate lower interest rates and payment terms with your creditors. Debt settlement will help you save money to clear debts you have not paid on in several months or years, but a fee may be charged for this service because they are often for-profit companies.

However, you should carefully choose the company you use, because some of these companies can be predatory. 

Article Sources

  1. "How to Reduce Your Debt." Accessed May 14, 2020.

  2. Federal Student Aid. "Student Loan Deferment." Accessed May 14, 2020.

  3. "What's the Difference Between a Credit Counselor and a Debt Settlement or Debt Relief Company?" Accessed May 14, 2020.