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MAXED OUT CREDIT CARD? HERE’S WHAT TO DO
August 13, 2015
Maxing out a credit card is no fun, but it happens. It’s especially easy to
hit your spending limit if you’re in the process of building your credit history. That’s because the limits on your cards are likely to be low until you manage to raise your credit score.
Now that your card is maxed out, don’t waste time on self-recrimination. Take steps to address the problem before it damages your FICO score, and consider this a learning experience.
1. STOP USING THE CARD
You can’t continue to use your card anyway until you get the balance down, but maxing it out may be an indication that your use of credit is out of control. Some people find it easier to leave the card at home, where they won’t be tempted to use it. Others have taken the extreme step of literally freezing their credit by putting it in a bowl of water in their freezer. If you’re tempted to use the card, the time it takes to thaw it out gives you a chance to make sure you really want to spend the money.
2. IF YOU CAN, TRANSFER THE BALANCE
If you have good credit, you may be able to get a balance transfer credit card. Moving some of your balance onto a lower-interest card can make it easier to pay off, and your original card won’t be maxed out anymore. But be careful — many card issuers charge a fee, typically 3%, when you transfer a balance. Also, don’t fall into the trap of moving your balance around without really reducing your debt load. Maxing out your credit card is a warning sign, an indication that you need to rethink your priorities and figure out how to spend less than you earn. Transferring the balance, while it may provide some immediate relief, is not a long-term solution, and it probably shouldn’t be something you do repeatedly.
3. MAKE A STRICT BUDGET
Sit down and look at your spending. Look for places to cut back, like gym memberships and pay TV services. See if you can reduce your utility bills by conserving energy, and talk to your friends about trying out ways to socialize more inexpensively. All that savings should go straight toward your credit card debt. If you’re having trouble thinking of ways to cut back on your spending, ask a friend who’s good with money to help you build a budget.
4. BUILD AN EMERGENCY FUND
This will make it easier to avoid plunging back into debt if you get hit with a medical bill or a major car repair. Many money gurus suggest keeping an emergency fund equal to six months’ worth of expenses, but don’t panic if that seems like an impossibly large number. Start by building up a cushion of $1,000 in a savings account. That’s enough to avoid putting minor emergency expenses on your credit card, and it will buy you some time while you consider your larger financial goals.