What Happens If You Max Out A Credit Card?

Credit cards make it easy to spend money. Whether it’s a trip to the grocery store or a spree at the mall, you don’t have to worry about how much money you have in your wallet when you shop. However, you could easily spend more than you plan if you aren’t careful. And if you reach your credit limit, you may wonder – what happens if you max out a credit card?

What does it mean to max out a credit card?

A credit limit is the maximum amount that you are allowed to spend on your credit card. When you max out a credit card, it means you have reached the card’s limit. You will no longer be able to make purchases on your credit card until you pay down your balance. Read on to find out what happens if you max out a credit card. 

Is it bad to max out your credit card?

A maxed-out credit card is never ideal. You won’t be able to charge anything else.  You could find yourself in a tough spot if your car breaks down or you have an emergency medical bill. Not only are you prevented from making purchases, but maxing out a credit card could be a sign that you are headed for financial trouble. 

Consequences of maxing out your credit card

Debt can wreak havoc on your life. Even if you have a good reason for maxing out your credit card, there are consequences to reaching your credit limit. 

Your credit score may drop

Credit reporting agencies look at the ratio of how much available credit you have compared to your total limit when calculating your credit score. This is known as your credit utilization ratio. When you max out a credit card, your utilization goes up. This can drag down your credit score.  Even maxing out your credit card and paying in full can cause your score to drop. 

Your minimum payment could increase

The minimum payment is the lowest amount a credit card company will accept to avoid charging late fees and penalties. Your minimum payment is based on the total amount that you owe. So on a max credit card, your minimum payment goes up. 

You’ll pay more in interest

The credit card company charges interest on the remaining balance when you don’t pay the total amount due. Credit card interest rates can be steep. So the higher the balance, the more interest you are charged. And these interest charges get tacked on to what you already owe. 

You could find yourself in debt

Credit card debt has a way of snowballing. Even if you can’t make any purchases on your credit card, the fees and interest charged are tacked on to what you owe. Unless you can pay your balance in full, the credit card company will keep charging you interest and fees. 

Transactions could be declined

Once you reach your credit limit, you may be turned away from making future purchases. This can pose a serious problem if you have a financial emergency that you can’t pay for.  

Can I still use a maxed-out credit card?

Once you’ve maxed out a credit card, you have no limit left for use.  Some card issuers may allow you to exceed your limit with your authorization; however, the company will charge you an over-the-limit fee which just adds to the debt you already owe. 

How to pay off a maxed-out credit card

The best way to deal with a maxed-out credit card is to pay the balance in full. But if you are strapped for cash, there are other ways to approach paying off a maxed-out credit card. 

Pay off as much as you can

Even if you can’t pay the entire balance, try to pay it off as much as you can. You might consider paying off the smallest balances if you have multiple credit card accounts. Or focus on paying down the account with the highest interest rate. If you are really strapped for cash, be sure to make the maxed-out credit card minimum payment to avoid late fees.  

Consider a balance transfer credit card

You could transfer part of the balance to a new card to free up a maxed-out credit card. If the card has a lower interest rate, you could save money by transferring over part or all of the balance you owe. 

Debt repayment plan

When your credit cards are maxed out, it may seem like you’ll never get your debt under control. Take the time to review your spending habits. If you cut back on buying things you don’t need, you can build a debt repayment plan into your household budget. And if you don’t have a budget, now is the time to put one together. 

Get a credit limit increase

Knowing that your credit score could take a hit when you are maxed out, consider asking for a credit limit increase. The additional available credit can improve your credit utilization ratio and keep your credit score from falling. Just steer clear of using the increased credit.

Consider a credit card hardship program

Your credit card company may offer an assistance program if you fall behind in making payments. As part of the program, the company may waive fees, lower your interest rate, and even postpone payments to help you gain financial footing. Enrolling in a credit card hardship program can keep your credit score intact, as the issuer must report to the credit agencies that you are current with your account. However, your credit limit may be reduced, or close your account if you participate in a hardship program. 

Maxed credit cards don’t have to ruin your finances

While credit cards make it easy to spend money, your balance can quickly spiral out of control if you aren’t careful. You will be hit with interest and fees when your credit card is maxed out. Your credit score can take a hit, and you may soon find yourself drowning in debt. But when you take measured steps to get your finances on track, you can regain control over your maxed credit cards.  

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