Maxed out your credit limit? Here are 5 things you should do next

Maxing out a Credit Card can be an uncomfortable situation to navigate. When you go over the credit limit, you most likely won’t be able to use your card and can lead to significant credit card debt. It’s important to explore solutions for resolving the debt by understanding the risks associated with maxing out a Credit Card. This article explains how you can get out of trouble when you max out your Credit Card limit. 

What is a credit limit?

A credit limit is the total amount of credit you have access to with your Credit Card. When you max out your Credit Card limit and no longer have any credit available, credit card companies usually block all additional transactions on that card. 

Five things to do if you max out your credit limit 

• Stop using that Credit Card

With a maxed-out credit limit, your primary goal should be to pay off your debt while also avoiding interest charges. To do so, you must stop spending from your Credit Card. You can activate the card's lock feature, if it has one, or freeze the card. Don't indulge in spending from the Credit Card any further. 

• Re-think your budget

Evaluate whether the debt was under your control or if it was unanticipated such as unemployment or an emergency. This will help you plan your budget more accurately. Keep track of your monthly expenses and eliminate purchases on things you don’t need. You can begin with the basics, like removing subscriptions to Over-The-Top (OTT) platforms, dining out, cutting down online shopping, etc. 

• Make a payment plan

Consider working on a payment strategy. Budget only for your needs and hold off on the “wants” until you are debt-free. This new budget plan should give you an idea of your monthly payments and how to handle them. If you don't, then you can follow either the debt avalanche or the debt snowball strategy.

Debt avalanche includes paying off the Credit Card debt with the highest annual percentage rate (APR) first, which saves you interest payments over time. Debt snowball, on the other hand, means making the minimum payment on all of your Credit Cards every month and adding the extra cash to the Credit Card with the lowest balance. This way, you can reduce the number of cards with balances faster.

• Transfer your balance to a lower-interest credit card

Credit Card interest rates are extremely high, contributing to large monthly payments. This is where Credit Card balance transfer can help. Credit cards with a balance transfer feature usually come with zero interest, which lowers your payments and allows you to pay off Credit Card dues, without putting a huge dent in your pocket. 

Before using a Credit Card balance transfer, remember that you need to use the card to pay off your debts, and not increase it.

• Seek financial assistance

If you're having difficulty organising your payments, consider hiring a financial expert. A financial advisor will assist you in planning your payback and hold you accountable for following through. They may also suggest a strategic Credit Card management plan, which can be an effective way to deal with increasing debt.

Summing up
 

Maxing out your Credit Card can lower your credit score and show lenders that you are a risky borrower, making it more difficult to get approved and resulting in less favourable terms.

The credit limit highly depends on the type of Credit Card and the bank offering it. IDFC FIRST Bank offers Credit Cards with low-interest rates starting at just 9% p.a, in addition to various other benefits such as non-expiring reward points. Apply for an IDFC FIRST Bank Credit Card now!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.