Maxed Out Credit Card? Here Are Your Options

You intended to pay off your credit card balance at the end of the month, but unexpected expenses came up. Or maybe you lost your job and couldn't afford to pay back the full balance. After a few months of interest, you've got a maxed-out credit card, and you're just making the minimum payments.

This situation has happened to a lot of folks, and the good news is that there are several ways to tackle a maxed-out credit card. We’ll check out the possibilities to help you decide which one is right for you.

The Problem with Maxing Out Your Credit Card

While maxing out a credit card isn't unusual, it can lead to financial difficulties. Here’s what might happen.

You could fall behind on your payments

As your credit card balance rises, your minimum payments increase. This can strain your monthly budget. It may also make it difficult to pay more than the minimum payment each month. That could keep you trapped in a debt cycle for a long time.

You could hurt your credit

Credit scores take into account how much of your available credit you're using. Using a lot of your credit is typically a red flag to creditors, so a maxed-out card could hurt your credit since it looks like you're struggling to pay bills.

You can generally reverse the credit damage from a maxed-out card if you pay down the balance. Once the lower balance is reported to the credit bureaus, your score should rebound.

However, if your maxed-out credit card causes you to fall behind on payments, your credit score could take a more serious hit. Even one payment that's at least 30 days late could have a significant effect on your credit score. Missed payments can stay on your credit report for up to seven years.

You could have a hard time borrowing money

When it looks like you're struggling to afford your debt, lenders might not want to give you even more debt. In other words, maxed-out credit cards often make creditors leery of lending money to you. 

5 Ways to Deal With a Maxed-Out Credit Card

Here are several ways to pay off a maxed-out credit card.

1. Spread out your spending

You may have one card that's nearly maxed out while other cards have little to no balance. Spreading out your spending could help you avoid maxing out a card or to focus on reducing the balance. Better yet, switch to cash for what purchases you can so you avoid rising balances on your cards entirely.

2. Raise your credit limit

If you consistently run into your credit limit, raising it could be the answer. Most issuers let you request a credit limit increase online or in their mobile app, or you can do it by phone.

Issuers may raise your credit limit on request if you have a history of on-time payments. Highlight your history as a loyal customer and any recent increases to your annual income or your credit score. Note that some issuers might require a hard credit inquiry to increase your credit limit, and that could impact your credit score.

3. Use the debt avalanche or debt snowball 

If you can afford to pay down your debts, consider the debt snowball or debt avalanche methods. With both strategies, you pay the minimum amount on each credit card to avoid late fees. Then you focus any extra money toward a priority debt.

With the debt snowball method, you put any extra cash toward the card with the lowest balance. When it's paid off, you put that money, plus the minimum payment for the paid-off card, toward the card with the next-smallest balance. The debt avalanche method is similar, but you focus on paying off the card with the highest interest rate first.

The snowball method is popular for boosting motivation, though the avalanche method should save you more money.

4. Take out a debt consolidation loan

A debt consolidation loan is a new loan that you use to pay off multiple existing debts. You can use it to pay off maxed-out credit cards. 

A personal loan for debt consolidation typically has a fixed interest rate and set monthly payments for a certain number of years until it's paid off. Using a loan could be especially helpful for paying off credit card debt that would otherwise continue to grow.

Sometimes, a debt consolidation loan reduces your monthly or overall costs. But that depends on its interest rates compared to the interest rates you're currently paying, as well as the loan term.

5. Settle your debts

When you don't think there's a way to pay off your maxed-out credit cards, debt settlement could be an answer. Debt settlement is when you negotiate with your creditors to get them to accept less than what you owe and consider it full repayment.

You can do this on your own or with the help of a professional debt relief company like Freedom Debt Relief. A professional debt relief company can negotiate with your creditors on your behalf, often taking a lot of the stress out of the process.

Choose a Plan You Can Stick to

Each strategy above has its pros and cons. It's worth reviewing all of them before you decide which makes the most sense for you. You might even try out more than one.

Make sure you also address the original source of the debt so you don't wind up back in the same situation. Create a new budget to help keep your spending on track, and check in with yourself every couple of months so you can catch small problems before they become big ones.