Steps to Take When You've Maxed Out Your Credit Cards
Your credit limit is the highest outstanding balance your credit card issuer will allow you to have, but that doesn’t mean you should take advantage of your full available credit. Maxing out your credit card—that is, charging your balance all the way up to your credit limit—could cost you credit score points, as credit scores consider the amount of credit you’re using. Reaching your credit limit without paying off your credit card balance each month could also be a sign that you’re spending beyond your means.
What Being Maxed Out Looks Like
Let’s say you have a credit card with a $4,000 limit. If your balance is also $4,000, you’ve maxed out your credit card and you don’t have any room left to spend. Any fees or even monthly interest could push your balance beyond $4,000.
Credit card issuers are required to get your permission before processing transactions that would push you over your credit limit. Otherwise, if you haven’t opted in, these transactions will be declined. Many credit card issuers no longer include a credit limit fee in their credit card pricing.
Steps to Bounce Back From Being Maxed Out
High credit card balances could be due to your own spending habits, i.e. buying more than you can afford or going on a shopping spree. That’s not the case for everyone. In times of financial hardship, for example, due to divorce or job loss, you may have to rely on your credit cards just to cover your normal expenses. In both situations, there’s a way to pay down your credit card balance and get out of credit card debt.
Stop Spending on Your Cards
Before you can pay your credit card balance down, you’ll have to stop spending. Otherwise, you’ll continuously accumulate more balance. Stop any subscriptions for that credit card and remove it as a payment option for any one-click purchases.
If you’re in a financial slump, you may have to depend on your credit cards for a while longer while you look for other options. As soon as you’re able, put your credit cards away until you’ve paid off your balance.
Evaluate Your Budget
Making the minimum payment isn’t enough if you want to get rid of a high credit card balance. A $5,000 balance at 20.21% APR will take more than 45 years to pay off with minimum payments (assuming those are set at 2% of the balance) according to a credit card minimum payment calculator. Ideally, you should pay as much as you can each month to make significant progress reducing your credit card balance.
The amount you can afford to pay on your maxed-out credit card depends on your monthly income and expenses. Consulting your budget helps you see where you can cut spending and free up funds to put toward your credit card balance.
If you don’t already have a budget, this is a good time to create one. You’ll gain a better understanding of your expenses and have a solid spending plan for the month.
Set Up a Payment Plan
Once you know how much you can pay toward your credit card each month, you can create a plan for paying down your balance. Decide how much you’re going to pay toward your balance each month.
You don’t have to make payment arrangements with your credit card issuer, but writing down your payment plan keeps you accountable and helps you see what you should pay each month.
Use a credit card payoff calculator to figure out how long it will take to pay off your credit card balance based on your monthly payment.
Bring your balance down even faster by taking advantage of opportunities to make extra payments. If your maxed-out card is a rewards card, consider redeeming any accumulated rewards for a statement credit to bring your balance down.
Lightening the Debt Load
If you still have a pretty good credit score, you may have other options for dealing with your maxed out balance. Transferring your balance to another credit card—ideally one with a 0% promotional APR on balance transfers—will maximize the impact of your payments. Without interest being added to your balance each month, your full payment goes toward reducing your credit card balance.
A personal loan is another option for “paying off” your credit card balance. You’ll still owe the same amount of money, but consolidating with a personal loan gives you a fixed monthly payment and a fixed payment schedule. An ideal loan has a lower interest rate and a relatively short repayment period.
Once you’ve consolidated your credit card balance, whether through a balance transfer or paying off with a personal loan, be cautious about using your credit card again. You may be tempted to tap into your newly available credit, but keep in mind that maxing out your card again means double the debt to deal with.
You still have options even when your credit isn’t in the best shape. First, you can try negotiating with your credit card issuers. Asking for a lower interest rate will lower your finance charge and allow more of your payment to go toward reducing your credit card balance. Or your credit card issuer may offer hardship options if you’re unable to make your regular minimum credit card payments.
Working with a credit counseling agency is another option to seek when you can’t work out a deal with your credit card issuer, have several maxed-out credit card balances, or need help organizing your finances. A credit counseling agency can work with you and your creditors to create a repayment plan with an affordable monthly payment and a fixed repayment schedule.
- The first step to paying off a maxed-out credit card is to stop using your credit card.
- Use your budget to figure out what you can pay each month and make a plan.
- Explore other options like a balance transfer, consolidating with a personal loan, negotiating a lower interest rate, or consumer credit counseling.
myFICO. "What Is Amounts Owed?" Accessed Sept. 16, 2020.