Maxing out credit card can eventually lead to a low credit score, credit limit fee, high interest, and high minimum payment. Paying the full balance right away might be a solution to this.
Do you have an overspending habit or Are trying to get a credit card?
Then this post is a must-read for you. Because you have a high possibility of maxing out credit card. And it can lead to some serious consequences in your financial life.
So, in this post, I am going to describe what maxing out credit card means, what can it lead to, ways to solve it, and everything related to it. So stay here till the end.
Let’s start with what does maxing out a credit card mean?
What Does Maxing Out Credit Card Mean?
Maixing out a credit card means you are either close to your credit limit or crossed your credit limit.
When you get a credit card, your credit grantor fixes a credit limit for you according to your income, borrowing history, and other factors. So, you can only borrow below your credit limit using the card.
However, when you overspend on your credit card then it can reach its credit limit and you will be unable to borrow any more using it. Maxing out credit cards is pretty common. According to a 2022 LendingTree study,
“22.7% of cardholders across the 100 largest U.S. metros have at least one maxed-out card.”
-Lendingtree
This indicates 1 in 4 American cardholders has a maxed-out credit card. It might be because of a lack of knowledge or overspending. But is it bad to tax out a credit card?
Is It Bad To Max Out Your Credit Card?
Yes, it’s certainly bad to max out your credit card.
Your credit card usage has a significant impact on your credit score. Because it shows your borrowing behavior. When you max out a credit card it indicates your overspending or irresponsible financial behavior. So, it’s definitely bad to max out your credit card.
Does Maxed Out Credit Card Affect Credit Score?
Yes, maxing out credit card and not paying the bill immediately or within the due date will definitely lower your credit score.
Maxing out your credit card is a negative financial behavior. However, if I max out my credit card and pay it off right away then it won’t hurt my credit. But if I max out and am unable to pay the bill within the due date then it will have an adverse effect on my credit score.
But apart from a negative effect on your credit score what can it do?
What Happens If You Max Out A Credit Card?
A maxed-out credit card can lead to severe financial outcomes. Here is a glimpse of it
- You will lose your grace period and interest-saving balance.
- You can end up in severely high-interest credit card debt.
- Maxed out credit card will increase your minimum credit card payment.
- You can end up paying credit limit fees and other penalties.
- A maxed-out credit card will cause a credit card decline which can be embarrassing in a public space.
Scary, right?
Well, it’s not even all. So, how can you solve it?
How To Get Rid Of A Maxed-Out Credit Card
Getting rid of a maxed-out credit card can be quite tough financially. The only way to solve the situation is to pay off the balance immediately. However, if your credit limit is high then it might not be possible immediately. So, here is what you can do
Using Your Savings
If your savings are more than your maxed-out credit card balance then use it for paying off a maxed-out credit card. This might not seem like a good idea. However, drowning in credit card debt with an insane interest rate is even worse.
But never use your emergency fund to pay off your maxed-out credit card.
Debt Consolidation
If you don’t have enough savings then debt consolidation can be a way to pay off your credit card debt.
Debt consolidation is a way of paying high-interest debt by taking low-interest debt. So to pay off your maxed-out credit card, you can take low-interest personal loans.
Plan a Tight Budget To Pay off
In case you are not eligible for a personal loan then you might have to pay off the credit card balance by cutting costs on your expenses. That’s why you need to plan a tight budget and make a plan to gradually pay off the maxed-out credit card balance.
Start Credit Counseling
If you are unable to plan a budget on your own you should take the help of experts. By experts, I mean consumer credit counseling. They will provide free consultation on planning a budget, executing it, and getting out of debt.
Negotiate With Your Credit Grantor
Another important thing you can do is, talk with your credit card company and convince them to lower interest, penalties, and other fees. This might seem like an absurd idea. However, it works. You just need to try harder and negotiate with them.
However, before negotiating with them please consult with a financial expert.
These are the things you can do to get rid of a maxed-out credit card.
How To Get A Loan With Maxed Out Credit
Getting a loan with a maxed-out credit card and a low credit score can be hard. As most installment or personal loans will require a 670 or higher FICO score. You can apply for a payday loan but that won’t be enough to pay your maxed-out credit card balance. Because payday loans offer smaller amounts.
However, you can take loans from your low-interest credit card and pay off the maxed-out balance of the other credit card.
How Much is Maxed out Credit Card Minimum Payment?
It depends on your maxed-out credit card balance.
Credit card minimum payment is the amount you pay to avoid penalties and high APR. However, the minimum payment is based on the balance you owe to your credit card company.
Different credit card companies have different minimum payment policies. So your maxed-out credit card minimum payment would entirely depend on your credit card balance and your credit grantor’s policy. But it will definitely be substantially higher than the regular minimum payment.
How Long Does It Take To Recover From Maxed Out Credit Card?
It can take 1-2 years to recover from the damage from a maxed-out credit card only if you pay the credit card balance on time afterward.
Maxing out credit card and not being able to pay out the balance will severely lower your credit score. Even paying off the debt in full gradually won’t increase your credit score.
The only way to recover from it is to behave financially responsibly and pay off your balance always on time for 1-2 years. Only then your credit score can recover from the damage.
In Summary
Maxing out credit card and not being able to pay off the balance immediately is definitely a financial nightmare. But if you have already done it then you should get advice from credit counseling and take immediate action.
