When used responsibly, credit cards can help you manage your finances and fund unexpected expenses such as medical bills or repairs. Some cards even offer rewards, cash back, or miles that will help you maximize the money you’re spending. However, if you can’t keep track of your spending, you may end up with a maxed out credit card—a card that has used up its credit limit.
A maxed out credit card can strain your finances and affect your credit score. Keep on reading to learn more about this and how you can avoid maxing out your card.
What is the Meaning of Maxing Out a Credit Card?
A credit card typically comes with a credit limit, the maximum amount you can spend using your card. Ideally, you’ll want to keep your credit card balance below that limit. However, sometimes, unexpected expenses happen, which may cause you to max out your credit card.
A maxed out credit card is a card that has reached its credit limit—or ever has gone over such limit. For example, if your credit limit is PHP 50,000 and your outstanding balance is PHP 50,000, you have maxed out your limit.
When you’ve reached the credit limit, your bank may not allow you to make additional charges to the card until you pay down the balance. It is best not to max out your card so that you can use it to cover an emergency.
Is Using Up My Credit Limit Bad?
In general, yes, going over your credit limit can have huge consequences on your finances. It’s also a sign that you may not have your finances in order, especially if you keep maxing out a credit card repeatedly. You can’t use your card if you maxed it out, your credit score suffers, and you’ll be burdened with heftier payments than what you spent.
What Happens Next?
So you went over your credit limit, now what? As mentioned, your card issuer may bar you from making any more charges on your credit card until you pay the outstanding balance and penalties that may apply.
However, it isn’t just this simple. A maxed out credit card can negatively affect your finances and credit history. Here are a few things that can happen:
1. Your credit card becomes unusable
Again, you can’t use your card until you pay the balance and other charges.
2. Your credit score may be affected
If you’ve gone over your credit limit, your credit score may decrease as your outstanding balance decreases. If you’re planning to take out a loan, your debt-to-income ratio may take a hit.
3. Your minimum payments may become unmanageable
Because your outstanding balance increased, your minimum payments will also rise. Your payments may grow to the point that you can’t afford them anymore. It’s another reason why you need to avoid maxing out your credit card
4. It may become harder to pay off the balance
Interest rates, outstanding balance, and other charges can pile on and on. Any amount not paid off by the end of your billing cycle may be charged with interest.
For example, your bank charges 15% interest for any balance not paid off by the end of the billing cycle. It means that every month, your balance will grow by that 15% until you pay it.
5. Your card is no longer beneficial
One of the reasons for getting a card is having access to credit when needed. However, if you have maxed it out, you’re eliminating this benefit.
Fees and Penalties in a Maxed Out Credit Card
Apart from the outstanding balance and interest rates, you may also have to pay for penalties associated with a maxed out credit card.
Here are some of the credit card fees you may need to pay for, depending on your bank:
- Late payment fee – PHP 300 to PHP 850 or the unpaid minimum amount due, whichever is lower.
- Over limit fee – PHP 300 to PHP 750 per occurrence (if your bank allows going over the credit limit)
- Multiple payment charge – PHP 40 to PHP 50 per payment, over the maximum transactions.
What Should I Do If I Maxed Out My Credit Card?
Here are a few things you should do once you’ve gone over your credit card’s limit:
1. Stop using the card
Generally, you can’t continue using your card anyway—not until you get the balance down. However, the key is to stop getting yourself in more financial trouble. If you feel like you can’t resist using your card, try these strategies:
- Keep your card out of your sight in a draw
- Leave your card at home when going out
- Use your card’s lock feature to prevent any purchases
- Delete your card’s details from online shopping websites and apps
2. Restructure your budget
A maxed out credit card may be a sign that your budget needs an overhaul. Look at your credit card statements to determine why you got into debt.
Is the debt within your control or due to unexpected circumstances? Once you figure out the answer, you’ll know where to make changes. Consider adjusting your budget to avoid overspending. Track your monthly expenses and cut back on unnecessary purchases.
3. Pay off the balance
Pay the outstanding balance as much as you can. Paying in full is ideal. If you pay off a significant part of your balance, your bank may allow you to start using the card again. Again, reevaluate your budget to accommodate the bigger credit card debt you incurred.
In addition, regularly check your balance. Be more aware of your purchases and keep them below your available total credit limit.
4. Get a credit limit increase
You may be able to get a credit limit increase, which would give you more leg room on your credit card. You can request for a bigger limit by reaching out to your bank. Some credit card issuers may let you submit a credit limit increase request online.
Getting a credit limit increase, however, is not a guarantee. Your outstanding balance and credit limit may be considered and a maxed out credit card may cause your request to be denied.
7 Tips to Avoid Exceeding Your Credit Limit
Consider the following tips to avoid maxing out your credit card:
1. Review your credit card balance regularly
Check your monthly statement and balance on your bank’s website. You should be able to see both your outstanding balance and available credit. Figure out how much credit you have left to spend and plan how to keep your spending below that amount.
2. Pay off your balance as soon as possible
Just purchased the latest gadget using your card? Pay off the amount as quickly as possible. It will give you more credit to spend on future purchases. Additionally, it will reduce your credit utilization ratio and improve your credit score.
3. Curb off the shopping
Expert suggests only using 30% (or lower) of your credit limit. If you think you’ve gone over this rate or beyond what you can afford, you may want to cut back on your online shopping sprees. Keep your credit card out of sight so you won’t be tempted to buy another scented candle you don’t actually need.
4. Track your budget
Create a monthly budget plan to determine where your money is going. Stick with it and only use your credit card to make bills payments and groceries when needed.
5. Avoid cash advances
A cash advance may have a much higher interest rate compared to just swiping your card for purchases. This means you may end up maxing out your card a lot faster due to higher interest rates. You may also be charged cash advance fees that are added onto your outstanding balance.
6. Be careful with multiple cards
If you have more than one credit card, it’s easier to overspend because the amount of credit available to you becomes higher. Multiple cards may give you more opportunities for spending.
However, it doesn’t mean having multiple credit cards is bad, you just have to be extra cautious with them. Make sure to pay off the balance in each card and check their balances regularly. You may want to create a separate spending tracker for every card you have to be on top of your balances.
7. Avoid emotional purchases
According to a study, people are more likely to spend more money when they’re sad. If you’re feeling lonely or upset, keep your credit card away or postpone your shop trip until you’re in a better mood. Purchases made when you’re sad may help you feel better for a while, you may suffer from buyer’s remorse later on, especially if you bought something you don’t need.
By letting your outstanding balance grow to the point that you’re maxing out your credit card, you’re digging a very deep hole for yourself. Sure, it may feel good to swipe your card for a shopping spree, but do you really need it?
It’s best to keep your credit card balance low—enough that you can afford the monthly payment. Experts suggest keeping your balance at 30% or lower, so it doesn’t hurt your credit score. However, if you go above this rate due to unexpected expenses, make sure to pay it off immediately.
-  How Much Credit Should I Use? (Akin, Experian, 2020)
-  Study: Sadness can make you spend more (Jewell, ABC News, 2008)