Credit Card Debt

7 Ways to Tackle Your Maxed Out Credit Cards

Pin to Pinterest Share on LinkedIn

If you have maxed out credit cards (or you’re getting close), you may be dealing with an incredible amount of financial stress. Whether you’re using your cards more than usual because of a financial emergency or living beyond your means, you’ll want to take control of your debt. But before you get into panic mode, here are a few things you can do right now to take some of the pressure off.

1. Stop spending money on all your cards immediately

The first thing you should do is stop adding to your credit card debt pile. If you’re maxed out on one card but keep using your other cards, it won’t be long until you’re maxed out on another. So stop spending on all your cards and resist the temptation to get a new one. Now is a good time to assess your spending and try to create a realistic budget. Cut out your non-essential spending to figure out how much you actually need to live on every month.

While it might be tempting to cut out every single expenditure that is “non-essential,” it also may not be realistic to stick to such a bare bones budget long term. Take a serious look at your credit card bills and identify the categories of spending that can be realistically eliminated or reduced.

2. Pay as much over minimum as possible

When you have maxed out credit cards, the amount of money you’re paying just in interest every month could be astronomical. Those minimum payments are probably not even putting a dent in your actual debt, which is why you must put as much of your extra cash as possible towards paying off your cards each month. Give yourself the extra money you need to do this by reducing your expenses.

Even if you can just pay a little extra each month, it could make a big impact. For example, if you’re making minimum payments of $150 each month on a debt of $5,000, it’s going to take you over 15 years and cost you $3,765 in interest alone to pay off that debt. If you bump your payments up to $250, it’ll take a little over 8 years to pay off your debt and only cost $1,760 in interest. The more you can put towards your debt, the more you’ll save on interest.

3. Stay up to date on all your payments

Once you’re allocating a large portion of your discretionary income towards paying off your credit cards, the most important thing to do is to keep on top of your payments. Missing payments or paying late tacks on additional fees and ultimately results in higher interest rates, which in turn adds more to your debt.

You need to be sure you’re making at least the minimum payment—hopefully more—on every debt, on time, every single month. Late monthly payments also can negatively impact your credit score, which will make it more difficult to get low rates on future loans.

4. Figure out your fast payoff approach

There are many different ways you can pay off your debt fast, and you should do research to figure out which plan of attack works best for you. If you have maxed out credit cards, you’ll want to make every effort to reduce your interest charges. Two very popular ways to pay down debt are the avalanche and snowball methods.

The avalanche method tackles the debt with the highest interest rate first, followed by the debt with the next-highest interest rate, and so on. Using the snowball method, you pay off the smallest debt and move along to the bigger ones, with the goal of getting some “quick wins” under your belt in order to gain momentum.

5. Negotiate a lower interest rate with your creditor

You may not know this, but you can actually negotiate with your creditors to reduce your interest rates. It can be as simple as calling your creditors, explaining your situation, and asking for an interest rate reduction.

Like any negotiation, though, you need to come prepared. You’re much more likely to get a better rate if you do your homework before you make that call. Have your current balance on hand, as well as the amount of interest you have paid over the last year. Do some research on cards with lower interest rates and have that on hand as well. You can use all of that information to explain to your card issuer why they should give you a lower interest rate.

It is expensive for card issuers to lose customers, so in many ways you come into the negotiation with an advantage. It is possible that they won’t be able to make you a deal, but there’s no harm in asking. And coming into the negotiation educated and confident in your knowledge can make a huge difference.

6. Get professional help

If you’re in serious trouble with your maxed out credit cards or other debts and can’t manage it on your own through budgeting and negotiation, there are services available to help you deal with your debt.

Credit Counseling

If you need help developing good habits that work for your specific income and life situation, a credit counselor may be able to help. They generally work with you in five main areas:

  • Taking stock of your income and spending and developing a realistic plan for your money month-to-month.
  • Debt management plans. A plan that consolidates your debts into one monthly
    payment and aggressively pays down your debts.
  • Bankruptcy counseling. A portion of the credit counseling relationship that
    advises you on the bankruptcy process.
  • Student loan counseling. Specific consideration of your student loan situation.
  • Housing counseling. Advice if you’re having trouble paying your rent or mortgage, or when you are considering buying your first home.

Debt Settlement

Debt settlement is another option for consumers with a large amount of credit card debt. With a debt settlement program, you hire a company to negotiate with your creditors on your behalf in order to persuade them to settle for less than the overall balance of your debt. Creditors will then consider the debt paid in full once the negotiated amount is paid off, and you’ll pay a fee to the debt settlement company.

If you’re in serious debt, such as having maxed out credit cards, your creditors generally will prefer negotiating a lower amount as opposed to not getting anything at all if you file for bankruptcy. In fact, many consumers who at first consider bankruptcy choose debt settlement instead because it often results in much better long-term financial outcomes.

7. If all else fails, file for bankruptcy

Bankruptcy is a court proceeding that was developed as a way to wipe the slate clean for people whose debts have completely outpaced their ability to pay them back. If you believe it would take you longer than five years to pay back your current debts, it might be time to consider bankruptcy.

There are two main types of bankruptcy. Chapter 7 bankruptcy absolves you of any obligation to pay off your debts, and requires you to sell off some of your assets in order to repay some of your debts. Chapter 13 bankruptcy re-negotiates your debts and requires you to make your payments to the court.

Filing either type of bankruptcy will severely damage your credit for years and should be considered a last resort.

Resolve your maxed out credit cards and plan for financial success

If you’re struggling with credit card debt and unable to pay much more than the monthly minimum, you may need to take action. Freedom Debt Relief is here to help you understand your options for resolving debt, including our debt relief program. Our Certified Debt Consultants can walk you through your options and help you find the right solution. Find out if you qualify right now.

Learn More

Kate Robinson Beckwith is a freelance writer who loves to use her way with words to help people get a better understanding of their finances. She lives in the Bay Area where she spends her weekends taking in culture, making books, and hiking with her husband and her goofy three-legged pitbull mix.