3 Ways to Avoid Maxing Out Your Credit Cards

by Maurie Backman | Updated July 21, 2021 - First published on April 21, 2021

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A woman with a credit card, looking worried.

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These steps will help you avoid hitting the limit on your credit cards.

Credit cards make it easy and convenient to buy the things you need and get rewarded in the process with cash back and other perks. But if you don't control your spending, you'll risk maxing out your credit cards and running into problems as a result. Here are a few easy ways to avoid that unwanted scenario.

1. Follow a budget

Many people max out credit cards because they have no idea what they can afford to spend in the first place. That's why it's crucial to set up a budget -- one that maps out your essential expenses, compares them to your earnings, and shows you what you can afford to spend in different categories. If you stick to a budget, you could end up spending less -- thereby avoiding racking up charges to the max.

2. Check your credit card balances every week

Many people don't check their credit card balances until their monthly statements come out. But if you wait a full month to see what your spending looks like, you could put yourself in a position where you risk maxing out your cards. A better bet is to check up on your credit card spending every week. If you see your balance climbing, it'll be a warning to cut back immediately.

3. Have an emergency fund

Some people max out their credit cards not because they can't stop shopping or have no self control, but because unplanned expenses pop up when they least expect them to. If you go to start your car one morning and it refuses to cooperate, you'll probably have no choice but to get it to a mechanic and pay whatever it costs to fix. And if you don't have adequate savings, that expense may need to go on your credit cards, bringing you much closer to hitting your spending limit.

The solution? Do your best to build up an emergency fund -- a savings account with at least three months' worth of living expenses in it. That way, if you encounter another unplanned bill or lose your job for a period of time, you'll have cash reserves to fall back on, and you won't have to whip out your credit cards to cover your costs.

Remember, maxed-out credit cards don't just limit your ability to make new charges -- they can also hurt your credit score. One of the most important factors that goes into calculating your score is your credit utilization ratio, which measures the amount of credit you're using at once compared to your total credit limit. If that ratio goes above 30%, your score could tank, making it more difficult to borrow in other ways if needed. And if you use 100% of your credit limit, well, that will give you a utilization ratio of 100%, which is bad news. That's why it's essential to avoid maxing out your credit cards. So follow these tips to steer clear of that dreaded scenario.

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