Managing Money In A Crisis
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I maxed out my credit card — what can I do?
Stop spending, pay your balance down and create a plan for the future.
If you’ve maxed out your credit card, stop spending immediately. Ideally, pay down your balance to the point where you’re not maxed out anymore.
Maxing out your credit card can lead to negative results, such as big drops in your credit score or even your issuer closing your account. To prevent this from happening in the future, create a plan and budget to avoid getting anywhere close to your credit limit.
What does maxed out mean?
If you’ve maxed out your credit card, it means you’ve spent to the point where you’ve reached the card’s credit limit. You will not be able to make any more purchases on the card, and you’ll need to pay down your balance to start spending again.
Here’s a simple example: If your card’s limit is $5,000 and your balance is $5,000, the card is maxed out.
To protect your credit score, keep your balance well under your card’s credit limit
While 100% credit utilization is technically “maxed out,” keep in mind that the threshold is significantly lower for scoring purposes. Many knowledgeable credit users have pointed out that an 88.9% or higher utilization is considered maxed out regarding your FICO score.
This means if your credit limit is $1,000, you want to keep your balance under $889 to avoid “maxed out” status.
That said, it’s typically a bad idea to let your balance get anywhere near that utilization. In fact, experts usually recommend keeping your utilization under 30%, which will help you avoid snowballing debt and large drops to your FICO score.
What happens if you max out your credit card?
Maxing out your credit card doesn’t look great to issuers and can negatively affect your standing in a few ways:
- It will hurt your credit score. A maxed out credit score means that your credit utilization score is well above the recommended 30% or less. Considering credit utilization is one of the greater influences of your credit score, you’re likely to see a dip in your score if you max your card.
- You can’t make more purchases. Naturally, if your credit card is maxed out, you can’t use it to make additional purchases until you pay it down. This can be troublesome if you pay for certain recurring bills, such as electricity or rent, using your credit card.
- Your issuer may close or freeze your account. If you make a habit of maxing out your credit card, your issuer may decide to freeze the account until you pay it off in full, or worse, close the account entirely.
- Your APR could rise. Depending on your issuer, you might face a penalty APR for sustaining a maxed out or near-maxed out credit card over a period of time.
What to do if you maxed out your credit card
If you’ve maxed out your credit card and are having trouble paying down your balance, here are the steps you should take to pay off your credit card balance in full.
Stop Spending
If you keep making purchases on your card each month, you’ll likely keep bumping up against your credit limit, making it difficult to pay off your card.
Curbing your spending is, of course, easier said than done. Sometimes, doing small things like simply leaving your cards at home when they aren’t essential can help take away the temptation.
Create a Plan/Budget
Consider writing down all your expenses and sorting them by fixed expenses and variable expenses. Fixed expenses are things such as mortgage or rent, car payments, utilities, etc. Variable expenses include items such as gas, groceries and restaurants.
Then take your income and budget it out for each of these expenses. Once complete, see if you have any money left or if you’ve over budgeted your income.
If you have extra money, put towards either creating a savings account or paying off your credit cards. It’s important to create a savings account if you already don’t have one. It may seem difficult to put money into savings while you still have a lot of credit card debt, but it helps you stay prepared for unforeseen events. Anything that doesn’t go into your savings account should then go toward your credit card balance.
Perform a balance transfer to a new credit card
It is sometimes hard to pay more than the minimum balance if you have a high interest rate. Look to see if there is another card with a lower interest rate. Once you find a credit card with a lower interest rate, see if that credit card company will allow you to transfer your balance. Check out our balance transfer page for more information.
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Tips to avoid maxing out your credit card
The best way to avoid maxing out your credit card is to create a budget and carefully monitor your spending. Here are some ideas to help you stay on track:
- Give yourself a credit card allowance each month. Look at your budget and figure out how much you can realistically expect to pay off based on your monthly income. Calculate necessities like groceries and gas, and however much you’re able to afford for extras like entertainment and discretionary spending money. Come up with a specific dollar amount that you’re allowed to charge to the card each month, and stick to it.
- Build up a savings account. Emergencies and unexpected expenses are a part of life, and we don’t always have the liquid cash available to fund these necessary purchases. Building up an emergency fund now can help make sure you’re able to foot the bill when those events arise down the line, rather than maxing out your credit card.
- Pay off your balance at regular intervals. When you commit to paying off your bill at set intervals — say, twice monthly, after payday — you’re more likely to stay on top of the balance, which can help prevent hitting your credit limit.
- Consider ways to earn extra income. If you find that you’re maxing out your credit card on a regular basis, even after creating and sticking to a realistic budget, increasing your cash flow by freelancing or picking up an odd job could help ensure you’re able to pay the balance.
- Get rid of your credit card altogether. For some people, the only surefire way to avoid maxing out their credit card may be to take a break from swiping that piece of plastic altogether. While it doesn’t have to be forever, this can be a good way to reset your shopping habits and practice living on a tighter budget.
Bottom line
While it can feel difficult to get out from under a maxed-out credit card, a little planning can help chip away at your balance and make it start to feel more manageable. Take care to monitor your finances and stick to your budget as much as you can.
You could also take advantage of a balance transfer credit card for an extra edge in paying down your balance.
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