A maxed-out credit card can lead to serious consequences if you don't act fast to lower your balance.
When you hit your card's limit, the high balance may cause your credit scores to drop, your minimum payments to increase and your future transactions to be declined.
Here's what to be aware of when you max out a credit card, and how to go about addressing the problem.
Your credit score may drop
Maxing out your credit card increases your credit utilization ratio, or the amount of credit you’re using compared with the amount of credit you have available. Credit utilization is among the biggest factors in your credit scores, which help lenders evaluate your credit risk when deciding whether to loan you money. Most financial experts recommend keeping credit utilization below 30% to maintain a healthy credit score.
If you must use all of your available credit — say, if you’re financially squeezed by an emergency — your credit scores can bounce back eventually, as long as you pay down the balance and stay on track with payments.
Your minimum payment could increase
Maxing out a credit card can potentially result in a higher minimum payment, depending on how your issuer calculates it.
Usually, the minimum payment calculation includes a percentage of your balance. The higher the balance, the larger the minimum payment. If you’re curious, you may find specifics of how your minimum payment is determined in your card’s terms and conditions, or you can contact your issuer for details.
A higher minimum payment can be an adjustment for your budget. It may be harder to manage, especially if you were already struggling to cover the previous minimum payment.
Nerd tip: Skipping a minimum payment or paying less can result in a late fee of up to $40 and a potentially steep penalty interest rate. If you can't afford your minimum payment, contact your issuer to explain your situation. The issuer might be willing to work with you. Be sure you understand any new terms the issuer offers before accepting.
Transactions could be declined
When you max out a credit card, you typically don’t have any room for spending. Depending on your issuer and credit profile, your credit card may either be declined for purchases or you could be allowed to exceed your credit limit, up to an amount.
Either way, though, if you’re already struggling to pay down your credit card debt, going over your credit limit will only dig you further into debt. Once you've maxed out your credit card, your best course of action is to craft a plan to pay down your balance.
» MORE: How to pay off debt
Paying down a maxed-out credit card
If you’re having a hard time paying down your balance, you might consider exploring your get-out-of-debt options. Depending on your creditworthiness, you can employ one of these strategies:
A balance transfer credit card. With good credit (typically FICO scores of 690 or higher) and a low credit utilization ratio, you might be eligible to transfer debt from your maxed-out credit card to one with a lower annual percentage rate from a different card issuer. A good balance transfer card has no annual fee and a lengthy 0% introductory APR on transferred balances. Note that most cards charge you a balance transfer fee between 3% and 5% of the amount you're transferring — although some cards don't charge this fee at all.
A personal loan. You can consolidate your debt from different credit cards into a personal loan that offers a lower fixed interest rate.
A debt management plan. If you’re three to five years away from paying off your debt, a credit counseling agency can provide you with a debt management plan that combines your debt into one monthly payment with a potentially lower interest rate.
A credit card hardship program. If you’ve maxed out your credit card due to circumstances beyond your control like unemployment, a family emergency, health problems or other hardships, your issuer might give you a break on fees or interest payments. Before accepting a credit card hardship program, though, consider the potential drawbacks, which can include your account being frozen or closed. Be sure to understand the new terms and ask how they may impact your credit.