4 Important Steps to Take After Maxing Out a Credit Card

When you're approved for a credit card, the card issuer also approves you for a credit limit. That's the maximum amount you can spend. If you reach that limit, then you've maxed out your credit card.

This has some serious consequences. If you can't pay off the balance, you'll get charged credit card interest, which is normally expensive. It can also negatively affect your credit score. That's why after maxing out a credit card, there are a few steps you should take right away.

1. Stop using it

If you try using your credit card any more, it will most likely be declined. You need to pay down the balance before you can use it again.

Now, some card issuers have flexible spending cards. These let you exceed your credit limit, without any extra fees, on a case-by-case basis.

Even if you have one of these cards, it's better to stop using your credit card until you've paid down the balance. You're going to be charged interest on your balance. The more you spend on your card, the harder it is to pay back, and the more interest you'll pay.

2. Make a plan for paying off your credit card

Credit card debt can be very costly. The average credit card interest rate is 21.47%, according to Federal Reserve data. On a $5,000 balance, you could end up paying $1,074 in interest per year.

When you've maxed out your card, it's important to start working on a plan to pay off your credit card debt. Here's how you can do that:

• Review your monthly income and expenses.
• Figure out how much money you can afford to put toward your credit card every month.
• Plug that amount into a credit card payoff calculator to see how long it will take.

It usually makes sense to put as much money as possible toward your debt. Make your credit card debt one of your top priorities, after paying your regular bills. Paying an extra $100 or $200 a month can often shave months off your payoff time and save you hundreds of dollars as a result.

3. Look for ways to cut costs or pick up extra income

You might find that you can make a solid monthly payment toward your credit card, without any changes. But if not, your best bet is to reduce your spending, increase your income, or both.

Here are a few ideas to consider:

• Try spending less on groceries and dining. These are both areas where it's easy to overspend. Fortunately, it's also easy to cut back by shopping for more affordable foods and going out to restaurants less often.
• Cut back on monthly subscription services. While these usually aren't too expensive, they can add up when you're paying for several of them. By temporarily canceling one or two subscriptions, you could have an extra $20 to $30 to put toward your debt.
• Look for a side hustle. There are plenty of side hustles that you can do in your free time, such as rideshare driving, pet sitting, and offering freelance services online.
• See if you can pick up more hours at work. Let your manager know that you're interested in working extra hours if available. It never hurts to ask.

4. Check out balance transfer offers

A balance transfer is when you move a balance from one credit card to another. The reason to do this is that some credit cards offer a 0% intro APR on balance transfers. If you have a good credit score (670 or higher), you may qualify for one of these balance transfer cards.

Let's say you've maxed out a card with a $5,000 credit limit and a 20% APR. If you can pay $300 a month, it will take 20 months to pay off and cost you $906 in interest.

Compare that to if you open a balance transfer card with a 0% intro APR for 18 months. You could then transfer over that $5,000 balance. These cards usually have a balance transfer fee of 3% to 5% ($150 to $250 on a $5,000 balance). You could pay that same $300 a month and have your debt paid off in 17 months with no interest charges. You'd save $656 to $756 total depending on the balance transfer fee.

It can be challenging to pay off a credit card after maxing it out. But if you work hard to pay it off, you'll get your balance down to $0. Going forward, avoid using too much of your credit limit. Most importantly, only charge what you can afford to pay in full. When you always pay in full, you won't lose any money because of interest charges.