Steering clear of credit card debt is basically a universal financial law, but let’s be honest — sometimes, you break this rule.
Between Black Friday, Cyber Monday, and basically the entire month of December, the end of the year represents an expensive time for most of us. Credit cards can give you extra spending power to finance the holidays when you run out of money.
But in all that hustle and bustle, you can overlook the fact that credit card spending is an IOU, and you’ll eventually have to pay them back sooner than you think. This article helps you do just that.
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Why You Should Prioritize Your Debts
The online lenders at Fora recommend paying off a line of credit all at once whenever possible. And that rule applies to credit cards, too. After all, lines of credit and credit cards function very similarly as loans go.
But when you max out your cards, paying off your balances all at once can be challenging. In fact, most people have to take the slow route by covering just the minimums.
What Can You Expect When You Hit Your Limits?
So, what exactly happens when you stay near the limit of your cards?
Declined Transactions
Hitting your limits means you don’t have any more available credit to draw. You won’t be able to use this account, even in emergencies.
Unfortunately, emergencies won’t wait patiently until you’ve recovered your limit. If one arrives soon, you might have to think about applying for a new credit card or line of credit. Getting a new loan depends on eligibility, underwriting, and creditworthiness — all three of which may be affected by your maxed-out cards.
Overdraft and Over-Limit Charges
Your purchase might go through if you’ve opted for overdraft or over-limit protection. However, this privilege comes at a cost, like additional fees that add insult to financial injury.
Added Interest and Finance Charges
Carrying over a balance that maxes out your limit means interest and finance charges will pile up, even when you don’t make any more purchases with this account.
Potential Credit Damage
If your credit card company shares your account information with a credit bureau, your balance can also affect your score. A maxed-out account represents a 100% credit utilization ratio, a far cry from the recommended 10% or less.
How to Pay off Your Limits Faster
Now that you’re aware of the pitfalls, let’s focus on damage control:
1. Pay the Minimum:
Ensure you make at least the minimum payment each month. This payment protects you from late fines adding to your debts.
2. Trim Unnecessary Expenses:
Track your spending habits and cut out things you don’t need, like streaming services, wardrobe updates, and takeout. Redirect the saved cash towards your credit card payments.
3. Request a Limit Increase:
While paying off debt, ask about a credit limit increase. This move can reduce your credit utilization ratio, provided you don’t chase this new limit. Beware, some companies won’t offer this increase if you have missed minimum payments in the past.
Bottom Line: Persistence Pays Off
Paying down credit cards is a gradual process. It won’t be a walk in the park, but adhering to these strategies can slowly pay down your credit limit and pave the way for financial freedom.
While maxing out your credit cards might feel like a setback, proactive steps and financial discipline can turn the tide in your favour. Embrace these tips and embark on a journey to regain control of your financial well-being this year!
