What to Do When You Max Out Your Credit Cards

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If you've maxed out your credit cards, it's not the end of the world. While it's a clear sign you should rein in spending and pay down your debt to get back on track financially, with proper planning and hard work, you could find yourself debt-free again.

Maxing out a credit card means you've reached your credit limit and no longer have additional credit to utilize with that card. Maxing out all your credit cards means you have no available credit across your card accounts.

Spending like this is no laughing matter: Relying so heavily on credit could translate to paying a lot in interest over time. It could also drastically affect your credit score. The higher your balances, the harder it will be to dig yourself out of debt.

But no matter how much debt you're in, or how many cards you've maxed out, a few changes could get you on the path to repayment and financial stability. Check out this guide for tips on how to build a repayment plan to tackle your credit card debt.

Create a Spending Plan

Much like you do when you create a budget, you need to take inventory of all the things you spend money on to figure out why your credit card debt has reached its limit. If you've recently had a financial or personal emergency, the costs associated with it could be substantial and may be part of why you've spent so much on your cards. In other cases, you may be making purchases, like eating out at expensive restaurants often or buying plane tickets, that you simply can't afford on your monthly income. Once you look closely at your credit card spending, see where you can make spending cuts. Reducing or eliminating unnecessary spending is essential to paying down your credit card debt.

If you haven't already, create a monthly budget that gives you a clear picture of how much money you bring in every month; how much you pay toward fixed expenses such as rent, utilities, car payment and the like; and how much you have left for discretionary spending. This will help you determine how much you can put toward your credit card debt and will encourage you to make responsible financial decisions to keep your spending within your means.

Avoid New Debt

If you're stuck with maxed-out credit cards, this is a good time to lie low and not apply for new credit until you get a handle on your current debt. Not only would a new lender see that you have a high credit utilization rate on your revolving credit lines, but your credit score likely experienced a dip due to the maxed-out cards, making it trickier to get approved for new credit. Credit utilization is a major factor in calculating your credit scores, and when your balances get closer to your credit limits on revolving lines of credit, your utilization ratio, or percentage of available credit you're using, can increase dramatically—ultimately bringing your credit score down.

The only exception to avoiding new debt is consolidating your existing balances to help you save money and get ahead of your credit card debt. A debt consolidation loan could help you save money on interest over time and help you streamline repayment if you have multiple cards that are maxed out. This method could backfire if you consolidate debt but continue to spend on your freed-up credit card lines, however. So be sure to halt all credit-based spending if you can while you're in the process of getting a handle on your debt.

Look for Extra Income

If you've maxed out your credit cards, it's safe to assume you're spending more than you have in available discretionary cash. To bring in more income each month, consider finding a side hustle or something you can do in your spare time. Or consider looking for a new job that will pay you more.

Whether you take on a part-time job, work overtime at your main job or sell some of your extra belongings, having extra income each month will allow you to put more toward your outstanding debt. Use as much of the extra income you have each month to pay down your credit card debt. The interest on credit card debt can be a killer, making it difficult to pay down your balances, so it is important to reduce it as quickly as possible.

Set Up a Repayment Plan

Creating a repayment plan is an essential step in getting rid of your credit card debt. If you've made a general budget, you should have an idea of how much you can afford to pay toward your debt each month. Once you have that figure, use it to determine how much you will pay toward each card (if you have multiple credit cards with balances) each month.

Two popular methods of attacking credit card debt are the debt avalanche approach and the debt snowball approach. In the debt avalanche approach, you'll focus on paying back the credit card debt with the highest annual percentage rate (APR) first, which will save you money on interest payments over time. With the debt snowball approach, you'll make minimum payments on all your cards every month and put any extra money you have toward the credit card with the lowest balance. This will help you reduce the number of cards with balances faster, and once you pay off each card, you can apply the amount you were paying to the other cards.

Consider Credit Counseling

If you're having trouble planning your repayment on your own, consider finding a credit counselor to help you craft a plan. A credit counselor is someone who will help you plan your repayment and help you stay accountable for following through. Your credit counselor may recommend a debt management plan, a more formalized debt payment strategy which can be a helpful alternative to tackle mounting debt.

Rebuild Your Credit

Whether this is the first time you've maxed out your credit cards or it's a common occurrence, you may notice your credit scores fluctuate along with your periods of heavy debt.

If your credit has suffered from maxing out your credit cards, it's a good idea to work toward rebuilding it so you don't have to deal with a poor credit score in the future. Here are a few tips on how to approach rebuilding your credit:

  • Find out where your credit stands. You can get a free copy of your credit reports and FICO® Score from Experian so you know exactly what is in your credit file.
  • Pay all your bills on time. Maxed-out cards also often come with missed or late payments, as some people who are heavily reliant on credit might also have cash flow problems. Payment history is the most important factor in calculating your credit score, so paying your bills on time is a crucial step to improving your credit. Consider using bill pay to ensure you don't miss any payments.
  • Keep your credit utilization low. As mentioned above, maxing out credit cards will spike your overall credit utilization ratio, one of the most important factors credit scoring models use to calculate your credit score. If you maxed out your credit cards, your credit utilization ratio would be 100%—more than three times the recommended ratio of under 30%. Keep paying down your credit card debt so you can lower your credit utilization ratio.
  • Check out Experian Boost®ø. This tool can help you increase your FICO® Score instantly by giving you credit for utility and telecom payments that you are already making.

The process of paying down your credit card debt and improving your credit takes time, so be patient and stick with your plan. But the money you'll save and the boost to your credit will be worth it.