Maxing out your credit cards is one of those things you shouldn’t do. But sometimes, it happens anyways.
Credit cards offer a convenient way to handle all the food, entertaining, gifts, and travel that come with the holidays. But all that swiping will eventually catch up with you. If you have a low limit and have to put an unexpected expense on creditor can’t pay everything off by the next billing statement, you could be in trouble.
What Happens if You Max Out Your Cards?
If you reach your max on a card, one of two things could happen the next time you try to use it.
- Most people will be declined, so they can’t make the purchase.
- However, your purchase might go through if you opted for overdraft or over-limit protection — but you’ll pay additional fees and charges for the privilege.
Other consequences may follow if you can’t pay off your entire bill by the next billing statement.
Carrying over a balance — especially one as high as your entire limit — adds interest and finance charges to your payments. This means you’ll add fees to your bill, even though you can’t use your card to make additional purchases.
Depending on how your account gets reported to the credit bureaus, it may also negatively impact your credit score. That’s because a maxed-out card has a 100% credit utilization ratio. Generally speaking, you want to keep this ratio below 30%.
What Should You Do if You’ve Reached Your Max?
Now you know the effects of maxing out cards, it’s time to focus on how you can undo the damage done to your finances.
Make Sure You Pay the Minimum
At the very least, you need to make sure you hit your minimum payment each month. This payment keeps your account in good standing, so you may avoid late penalties.
Consider Getting an Online Loan
With your credit card full, you can’t rely on it in an emergency like you usually do, so you need to find an alternative. While some people may be able to ask friends or family for help, not everyone is in this position.
If you don’t have this option, research online loans from direct lenders. These online loans may be an alternative safety net in emergencies.
Before applying for a loan online, compare direct loan lenders to understand their rates and fees. Your time researching may help you find an online loan that fits your emergency.
Cut Unnecessary Expenses in Your Budget
Take some time to review your usual spending to see if there’s anything you can cut. The expenses you manage to eliminate from your budget will free up cash you can put towards your card.
Ask for a Limit Increase
While you’re working on paying off debt, reach out to the card company to see if you can get a limit increase.
This may help lower your utilization ratio, provided you don’t make more purchases. That’s because your ratio is determined by your use and your limits. If you can increase your limits, your usage will automatically take up a lower ratio.
If your current card company denies you a limit increase, you may consider applying for a new card elsewhere for the same effect. To keep your ratio low, you cannot use this card.
Stick with It!
Paying down your credit cards won’t be easy or quick, but these tips can help you slowly free up your limit this year!