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Maxed Out Credit Card? Here’s What to Do

Feb. 14, 2015
Credit Card Basics, Credit Cards
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Maxing out a credit card is no fun, but it happens. It’s especially easy to hit your spending limit if you’re in the process of building credit history. That’s because the limits on your cards are likely to be low until you manage to raise your credit score.

Now that your card is maxed out, don’t waste time on self-recrimination. Take steps to fix the problem before it damages your FICO score, and consider this a learning experience.

1. Stop using the card

You can’t continue to use your card anyway until you get the balance down, but maxing it out may be an indication that your use of credit is out of control. Some people find it easier to leave the card at home, where they won’t be tempted to use it. Others have taken the extreme step of literally freezing their credit by putting it in a bowl of water in their freezer. If you’re tempted to use the card, the time it takes to thaw it out gives you a chance to make sure you really want to spend the money.

Nerd note: Even when you’ve stopped using your card, it’s usually a good idea not to close the account. Keeping the account open while you pay the balance down is good for your credit.

2. If you can, transfer the balance

If you have good credit, you may be able to get a balance transfer credit card. Moving some of your balance onto a low-interest card can make it easier to pay off, and your original card won’t be maxed out anymore. But be careful – many credit card issuers charge a fee, typically 3%, when you transfer a balance.

Also, don’t fall into the trap of moving your balance around without really reducing your debt load. Maxing out your credit card is a warning sign, an indication that you need to rethink your priorities and figure out how to spend less than you earn. So transferring the balance, while it may provide some immediate relief, is usually not a long-term solution and it probably shouldn’t be something you do repeatedly.

3. Make a strict budget

Sit down and look at your spending. Look for places to cut back, like gym memberships and cable television contracts. See if you can reduce your utility bills by conserving energy, and talk to your friends about trying out ways to socialize more inexpensively. It can be hard to admit you need to spend less money, but it’s likely that some of your friends will be relieved to find out they don’t have to spend money on movie tickets or bar tabs in order to spend time with you.

All that savings should go straight toward your credit card debt. If you’re having trouble thinking of ways to cut back on your spending, ask a friend who’s good with money to help you build a budget. Budget tracking software like Mint or You Need A Budget can also help you keep an eye on where your money goes.

» MORE: How to pay off debt

4. Avoid maxing out in the future

To maintain a healthy credit profile, it’s best to keep your credit card balance below 30% of your available credit. Even better: Avoid carrying a balance at all. Here are two tips to help make that happen:

  • Track your spending. After making a budget, the next most important thing you can do is keep a close watch on how much money is going out. Some people check their credit card balances weekly to make sure they’re not spending more than they can pay off at the end of the month. Some people use a debit card for most purchases. Either way, you’re not spending more than you can afford.
  • Build an emergency fund. This will make it easier to avoid plunging back into debt if you get hit with a medical bill or a major car repair. Many money gurus suggest keeping an emergency fund equal to six months’ worth of expenses, but don’t panic if that seems like an impossibly large number. Start by building up a cushion of $1,000 in a savings account. That’s enough to avoid putting minor emergency expenses on your credit card, and it will buy you some time while you consider your larger financial goals.

The best thing you can do now is to pay your current balances down as aggressively as possible, and take steps to avoid maxing your cards out in the future. If it motivates you to get control of your money, maxing out your credit card may be on of the best things that ever happens to you.

Image via iStock.