by Maurie Backman | Dec. 19, 2019
Hint: The answer may surprise you.
Maxing out your credit cards is an overwhelmingly bad idea. Granted, many consumers who go that route do so unintentionally, but research from The Ascent reveals that one generation is more guilty of falling victim to that trap than others.
If you're thinking millennials, think again. While it's true that 50.3% of younger Americans have, indeed, maxed out their credit limits, the dubious distinction of maxing out the most goes to none other than Gen Xers, with 58.8% hitting their credit limits at one point or another.
By contrast, only 39.3% of baby boomers have maxed out their credit cards -- an uncomfortably high percentage nonetheless, but notably lower than the numbers associated with boomers' younger counterparts.
If you're in the habit of maxing out your credit cards, you should do everything you can to bust out of it. In doing so, you'll improve your financial picture and avoid some otherwise very unpleasant repercussions.
There are so, so many things wrong with routinely maxing out credit cards. And to be clear, we're not talking about a one-off situation where you hit your credit limit due to an emergency expense your savings account couldn't cover; we're talking about consistently maxing out your credit limit for no good reason at all.
For one thing, the more charges you rack up, the more money you'll owe your credit card companies. That, in turn, can cost you a boatload of interest.
Furthermore, if you max out your credit cards, you won't have the option to charge expenses when a true emergency arises. And that could be disastrous in its own right.
Another thing you should know is that when you max out your credit cards, you risk dragging your credit score into truly unfavorable territory. Credit utilization, or the percentage of available credit you're using at once, is a major factor that goes into calculating your score. A utilization rate above 30% is generally detrimental, which means that if you have a total credit limit of $10,000, you should never have more than $3,000 in outstanding charges at once. If you're maxing out your credit cards and carrying those balances forward, you're clearly well exceeding that 30% threshold, thereby hurting your credit score and making it harder to borrow money the next time you need to.
If you're repeatedly maxing out your credit cards, it could be due to a number of fixable factors, the first of which is that you're not following a budget. Some people find budgeting boring. And while it may not be the most thrilling use of your time, it is a necessary means of keeping your spending in check. Setting up a budget will help you better understand how much you can afford to spend on ongoing expenses so you're less likely to max out your credit cards accidentally on things like extra groceries, fuel for your vehicle, or home repairs.
Next, start making shopping lists and following them. Another big reason so many people max out their credit cards is that they repeatedly fall victim to impulse buys. But if you map out your lists in advance, you'll be less likely to stray from them. And if you really don't trust yourself, shop with cash and leave your credit cards at home. If you only take enough money to buy the things on your list, you'll eliminate the option to go overboard.
Maxing out your credit cards is bad news on all fronts, so if you've been guilty of it, it's time to do better. And if you're thinking you'll solve the problem by requesting higher credit card limits, don't. Getting more leeway is only likely to land you deeper in debt. Instead, get better at budgeting and sticking to shopping lists, and reserve your credit cards for those times when you truly have no choice but to whip them out.
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.
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