Maxing out a credit card isn't the end of the world. As long as you act fast to bring down your balance, you can get debt under control and keep your credit scores on track.
Brushing up against your credit card limit requires you to stop using your card, reevaluate your budget and explore your get-out-of-debt options. Here’s what you need to do.
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Stop using the card
You generally can’t continue to use your card anyway until you get the balance down, but the key is to stop digging the hole in the first place.
If you feel like you might be tempted to use your card, try some "keep away" strategies:
- Stash your card away in an out-of-sight drawer.
- Leave your card at home when you go out.
- Use your card’s lock feature (if available) to prevent future purchases.
- Delete your credit card information from apps and websites.
Some people even turn to extreme measures like freezing a credit card in a block of ice. Do whatever it takes to prevent any transactions while you pay down the entire balance.
🤓 Nerdy Tip
Even once you've stopped using your card and have paid it off, you may not want to close the account completely. Depending on the age of the account and what the credit limit is, shuttering it could negatively affect your credit scores, which help lenders determine your credit risk when deciding whether to approve your applications. Reevaluate your budget
A maxed-out credit card may be an indicator that your budget needs to change. By combing through your credit card statements, you can likely find out why you got into debt.
Consider whether the debt was within your control, or if unforeseeable factors like unemployment or an emergency contributed to it. Once you know the answer, you'll know where to make changes. It may require adjusting your budget to match a different salary or putting measures in place to avoid overspending, for example.
Track your monthly expenses and trim unnecessary purchases. Start with basics, such as subscriptions you may rarely use, but also look for room to be creative. If you’re spending the bulk of your budget at restaurants, explore the reason. Is it the social component you enjoy, the "not having to cook" part or both? You don’t have to deprive yourself, you just have to improvise. This might mean hosting a dinner or a potluck instead of meeting up with friends or loved ones at a restaurant.
Apply any new savings to your credit card debt. To make a bigger dent in the balance, consider ways to make money on the side.
» MORE: How to build a budget
Pay more than the minimum, if possible
With an updated budget, you have a better view of the amount you can truly afford to pay toward your credit card. Determine whether you can contribute more than the minimum payment to get out of debt faster. If you can't, at least stay current with payments to preserve your credit scores and future financial opportunities.
If you have other debts, you'll want to have a course of action. You can employ the snowball method, prioritizing loans by amount and focusing on the smallest one first to rack up quick wins. Or you can opt for the avalanche method, in which you tackle the card with the highest interest first.
Don't be discouraged if that finish line seems too far in the distance. Some get-out-of-debt options may offer a quicker way out.
Consider your get-out-of-debt options
If you have good credit (typically FICO scores of 690 or higher), you may qualify for more offers to break free from debt.
A balance transfer credit card
A balance transfer credit card allows you to move some or all of your balance onto a credit card with a lower promotional rate, which can offer some breathing room to pay it off. Keep in mind that you'll only be able to transfer a balance as high as your new credit limit allows.
You'll usually owe a balance transfer fee, typically 3% to 5% of the amount transferred — but some cards offer exceptions. The ideal balance transfer credit card features no annual fee, a lengthy 0% introductory APR period and no fees for balances transferred within a certain period.
A personal loan
Another option that requires good credit is a personal loan. You take the money from the loan to pay off the maxed-out credit card, then you pay off the loan in installments over a fixed term. This allows you to consolidate the debt into a single fixed payment with potentially lower interest rates, making it easier to manage.
With on-time payments, you should be done by the end of your term. This option prevents a variable interest rate from increasing your credit card balance beyond your control.
Even if you lack good credit, you may still have other options
A debt management plan
If you’re three to five years away from paying off your card, 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. This option can be especially helpful if you have multiple debts. There's a fee involved, but it may be worth it if it can save you a significant amount of money over the long term.
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, a credit card hardship program through your issuer might offer a break on fees, interest or payments. It doesn't hurt to contact your issuer for information.
If the issuer is willing to offer new terms, ask about the possible impact to your credit before accepting. This option could result in your account being frozen or closed, depending on the issuer.
Keep an eye on your credit score
As you’re paying down your balance, use your credit card’s mobile app to track your FICO score. If you’ve used more than 30% of your available credit, that score has likely taken a hit. In many cases, your free FICO score will come with a brief rundown of which actions are having a negative impact on it, which can help you modify your habits accordingly.
Keep your account open and active, pay on time and in full and try to keep your credit utilization low or work toward that goal. These healthy credit card habits will help you as you pay down your maxed-out card, and as you are ready to move on to your next financial goal.
