Maxed-out credit card – ‘What do I do?’ The Personal Loan Pal NZ guide

Got a maxed-out credit card and can’t repay it? You might be worried about what exactly you’re going to do. Paying your credit card balance is the obvious answer. Though what if it’s not possible for you at the time? Maybe you’re thinking about getting a loan to pay it off. Well, the purpose of this blog aims to answer that exact question. We’ll also explain what exactly it means to max out your credit card. Give you tips on how you can avoid it and how exactly you can use your credit card in the most effective way.

What does it mean to max out your credit card?

When you max out your credit card it means you have reached your credit card limit. Your card balance can even go over the limit. This happens when you have not paid off your balance in full at the end of the month and then fees are applied to your account.

What happens if you max out your credit card?

When you max out your credit card it means that you may be prevented from making further purchases with your credit card until your balance is paid off.

How to fix a maxed-out credit card?

One way would be to increase your credit card limit. Though issuers may be reluctant to approve you for a higher limit when you have already maxed out your current limit.

The other way to fix a maxed-out credit card is to pay off your balance in full. If you can’t manage to pay it off in full before the end of the month, at least try and pay as much as you can.

When can a maxed-out credit card be useful?

There are some situations when a maxed-out credit card can be useful. Such as when you want to make the most of your rewards points. Spending to your credit card limit will allow you to max out your rewards earning form your credit card.

How does a maxed-out credit card affect my credit score?

A maxed-out credit card can affect your credit score if your card issuer reports your account to credit bureaus. This will normally be on the account statement closing date. This is because part of your credit score is calculated by looking at the percentage of the credit you use out of the amount of credit available to you.

Can I get a loan to pay for my maxed-out credit card?

In certain circumstances, you may be able to get a loan to pay for a maxed-out credit card. Though lenders will like for you to give a valid reason as to why you’ve been unable to pay off your maxed-out credit card. For instance, if your reason is something like ‘I just didn’t pay it off’, it’s likely that your loan application won’t be accepted. However, if your excuse was something like ‘I fell unexpectedly ill and had to take a month off work’, your loan application is much more likely to be accepted.

However, if you have gotten yourself into unmanageable credit card debt, you could consider getting a debt consolidation loan.

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What is a debt consolidation loan?

A debt consolidation loan serves the purpose of paying off your outstanding debts so that you don’t have to pay multiple interest repayments. It can be useful if you have multiple maxed-out credit cards.

How to use a credit card most effectively?

1. Understand how your credit card works – many people can get themselves into trouble with their credit card provider if they don’t know their credit card’s terms and conditions. Get clear on what your credit card’s interest-free period is. Know what the fees and charges are and if your card gives you rewards points.
2. Pay off your credit card in time (before the end of the interest-free period) – this is an important habit to get into, which can help you avoid getting in credit card trouble. When you pay off your credit card within the interest-free period, it means you don’t have to pay for the money you are borrowing.
3. Maximize your credit card repayments – it’s important not to just make the minimum repayment amounts. You should try to maximize your credit card repayments so that you pay off the majority of your credit card balance or all of it.
4. Set yourself a sensible and reasonable credit limit – an effective way to use your credit card is to set a reasonable limit for yourself. Having a high credit card limit can be tempting and it can be easy to overspend.
5. Don’t use credit to make ends meet – a credit card comes in handy when you must make an emergency or unexpected payment. But using a credit card to get by in everyday life it is not a safe way to use a credit card.
6. Check your credit card statement – it’s a good idea to look at your credit card statements at the end of each month. Keep your credit card receipts and match them up with the expenses on your credit card statement. That way you will be able to see if you have been charged for anything that you did not buy.

What should credit cards be used for?

Credit cards have the potential to get you into trouble if not used wisely. However, when used in the right way credit cards can be incredibly useful. So when should you use a credit card?

1. Purchases made online – credit cards can be great for when you make any purchases online. Especially when you are buying from a lender that is small and not very well known. If something we to go wrong, it means that you have an element of protection.
2. Flights – a credit card can come in very handy when it comes to purchasing flights. Though, sometimes flights don’t stay at the same price for very long. If you see the price of a good flight out of the blue, a credit card can allow to grab that flight deal when you may not currently have the funds on
3. Purchases made over the phone – basically any purchase that is made that is expected to arrive in the future should be paid for with a credit card. So, when you are making a purchase over the phone and you won’t be receiving your product or service until a later date, a credit card protects you. If something were to go wrong, your payment can be cancelled before it goes through!
4. Big purchases i.e. laptops – big purchases out of the blue can be necessary and urgent. However, you may not have the funds available. It might take you a couple of weeks or months to save up for that needed item. But what if the item is a necessity? This is when credit cards can come in handy.

What are the benefits of using a credit card?

• Help you to get a good credit rating – which allows you to gain from the multitude of benefits that come with having a good credit score. Such as better interest rates on home loans and car loans.
• It’s a safety net if you are in an emergency (especially when travelling) – credit cards come in handy when emergencies arise. Sometimes unexpected expenses pop up and credit cards serve as a form of instant access to cash when these unexpected situations arise.
• They help you to keep a record of your expenses – credit cards are a good way to keep a track of your expenses. If you pay for everything on your credit card, then you’ll be able to pay for all your expenses at once.
• You can earn rewards on them – one of the greatest perks of credit cards over just a debit card is that you can earn rewards points. These can be rewards points for frequent flyer miles or gas points!
• Protects you from theft – if someone steals your credit card and makes expenses on it, your credit card issuer will protect you from being affected by this.
• Car rental insurance – some credit cards provide you with rental car insurance.
• Travel – some credit cards even provide you with travel insurance.

What are the disadvantages of using a credit card?

There are some real advantages of having a credit card by your side. However, there are some disadvantages, and with anything, it’s important to weigh up both sides of the coin.

• Can be tempting to overspend – one of the downsides of using a credit card is that you can be tempted to overspend.
• High-cost fees – there are costs associated with having a credit card such as annual fees. Though there is also interest that can add up and can become very expensive.
• Could damage your credit if you don’t use it properly – if you aren’t responsible for using your credit card it could end up damaging your credit rating.
• Could be at risk of credit card fraud – unfortunately, there are some schemes out there that are specifically targeted towards credit cards.
• Credit card surcharges – one of the downsides of using a credit card is that there are many places that charge an extra fee if you pay with a credit card.

What should I do in future?

Obviously, maxing out your credit card and feeling stressed out is not a desirable situation to be in. However, if there’s one positive thing we can take away from this is that it can be a positive lesson for the future. So, what can be done in future to avoid a maxed-out credit card?

1. Decrease your credit limit
2. Pay off your balance in full at the end of the month
3. Become good at budgeting
4. Only use your credit card for emergencies

At the end of the day if you’ve maxed out your credit card it’s not the end of the world.  There are ways to improve your situation and some cases you may be able to get a loan to pay off your maxed-out credit card. Nevertheless, you can look at your maxed-out credit card as a wake-up call to make financial decisions in the future.