Maxed Out Credit Card: What Happens When You Go Over Your Limit?

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.

Have you ever found yourself with a maxed-out credit card? It's a common situation that can feel overwhelming, but don't worry, you have options. Whether it's setting up a payment plan with your bank or exploring other strategies, we're here to guide you through the pros and cons of each choice.

Understanding your credit limit and the consequences of exceeding it is crucial. In this post, we'll help you navigate the situation with practical advice and tips to manage your finances effectively. For authoritative guidance on managing credit card debt, the U.S. Consumer Financial Protection Bureau offers valuable insights.

Want to skip the article and speak directly to a debt specialist? Click here for a free consultation.

What is a credit limit and what happens if I go over my limit?

If you are reading this, chances are that you’ve maxed out a credit card. You may be asking yourself “What happens when I go over my credit card limit?” The answer is pretty simple: the bank will charge you an interest fee for every day that your balance continues to grow. This can eventually lead to bankruptcy if not corrected quickly.

A credit limit is the maximum amount of money that can be borrowed from a creditor at any point in time. If you go over it, you will likely be subject to an increase in the annual percentage rate (APR), if it's not already agreed on with the creditor.

Basically, your credit limit is the number of dollars that your bank or credit card company will allow you to spend before requiring payment.

High interest rates on unpaid balances can result in a life-long cycle of debt that never ends if borrowers do not learn how to budget money and prioritize payments first and foremost on monthly debts.

How to avoid going over your credit card's limit

The first thing to do is call your credit card company (or go online) and set an alert. Tell them you want to be notified when your balance reaches a certain amount or falls below a certain amount of money. 

Avoid putting too much on the card at once. If possible, don't put anything more than 30% of your credit limit on it at one time. You can save money by paying for an installment plan or take out a loan if you need to buy something expensive and don't have enough in your account.

Check up regularly to make sure you're below the limit and won't go over it again unless you want to. Some companies offer alerts and warnings that will let you know when your balance is getting close to 50%. Your bank might do this as well - check with them for details about how they handle charge alerts.

How to Track Your Credit Limit Usage

It's important to regularly check your credit limit usage so you don't accidentally exceed your limit.

Here are some tips:

• Set up account alerts - Many credit card companies allow you to set up alerts to notify you when your balance reaches a certain threshold, like 80% of your limit. This gives you warning before you hit the max.
• Check your balance weekly - Make it a habit to log into your account weekly to review your balance and available credit. This helps you stay aware.
• Use budgeting tools - Apps like Mint can track your spending and send notifications if you're nearing your credit limit.
• Check your credit report - Your credit report shows your current credit limit for each card so you can see your overall usage. You can get a free copy of your credit report annually from each of the three major credit bureaus - Experian, Equifax, and TransUnion.

Monitoring your credit limit usage regularly is key to avoiding potential overage fees or having transactions denied if you exceed your limit.

The consequences of maxing out your credit card

There are some major consequences to maxing out your credit cards. Having to endure the burden of repaying a loan for a purchase that you can no longer afford.

A negative impact on your credit score, which could affect your ability to take out loans in the future.

Financial difficulties and excessive stress due to life uncertainties - it's never pleasant. Debt always has its consequences, and if not dealt with responsibly it can cause major financial distress and problems with family relationships as well as mental health issues such as depression.

One way to avoid maxing out a credit card is if you set up a spending allowance for yourself before using that specific card. Setting a spending allowance at least two months before it's time to purchase something gives you enough time and space from temptation —we're more likely not to grab our wallets when we've just given ourselves the assignment to buy something else today.

Another way is simply by paying off the majority of your balance every month so there's no excess hanging over your head.

Learn more by reading The Fastest Way to Pay Off a Credit Card.

Impacts of Exceeding Your Credit Limit

Going over your credit limit, even if approved with fees, can negatively impact you in a few key ways. 

• Credit score damage - Maxing out cards close to your limits can lower your credit scores, especially if you maintain high utilization month after month.
• Higher interest charges - Exceeding your limit may trigger penalty APRs around 30% on both new and existing balances. This can cost you a lot in interest.
• More credit inquiries - If you apply for new cards after maxing out your limit, you may see more credit inquiries on your report from denied applications. Too many inquiries can also lower your scores.
• Lower chances of approval - Lenders view maxed out applicants as riskier, so you may have a harder time getting approved for new credit after exceeding your limit.
  

What to do when you're already maxed out on your credit card

Don't panic. You can do these three things if you have reached the point where your credit cards are maxed out:

1. Call your credit card company and make a payment plan to pay off the balance over a period of time. If you can pay them a certain amount right now, they'll likely accept it instead of just saying "no".
2. After that is done, take out a small personal loan to cover the remainder. 
3. Save money in an emergency fund so that even when unforeseen circumstances arise, you have some savings on hand or at least an emergency fund for whatever will come next. 

Tips for getting back in good standing with the bank/credit company

Getting back into good standing with your bank or lender is going to be critical to repairing the damage that has been done. We have laid out these steps below to help.

1. Balance your checking account for at least a few months without any overdraft, and try to keep a buffer of more than $1,000 in there so you have minimal penalty fees.
2. Don't apply for another credit card before your current credit limit is restored from being maxed out! As soon as you're back in good standing get more lines of credit - just don't do it while having maxed out cards! 
3. Talk to the bank's manager about the situation, whether they're willing to work with you -- concessions might include waiving interest on debt payoffs or debt consolidation services!

Learn more by reading How to Build Credit Without a Credit Card

Ways to stay within budget so you don't have to rely on using a high-interest rate loan from a bank or other financial institution.

One strategy for saving money is to buy what you really need, plan your food for the week ahead, and make a list before heading to the store. This way you'll avoid spending money on something that isn't really necessary or you don't already have stored away in your cabinets at home.

Another way is to go shopping less often by sticking within a budgeted amount of cash (and only carrying that amount around with you) when you leave the house. The key thing is that it gives one an upper hand in making sure they set aside enough time every week where they can designate this time strictly towards cooking meals instead of eating out.

Strategies for overcoming shame and guilt associated with not being able to pay off debt

1. Distract yourself from feelings of shame and guilt by not thinking about the things that are making you feel bad, which is taking your attention off of what's actually important.
2. Stop using money to measure self-worth or significance in life - if credit card debt is something that's bringing you down, start looking at other areas in your life where you can find joy and meaning outside of an object or status symbol. 
3. Once again, refocus on what's really important - be more present so it doesn't seem like time is slipping away with wasted days spent feeling sorry for yourself!

Ways to Avoid Hitting Your Credit Limit

In addition to monitoring your usage, here are some proactive steps you can take to avoid hitting your credit limit:

• Make more than the minimum payment - Paying down your balance faster can give you more available credit from month to month. Always try to pay more than the minimum if possible.
• Ask for due date changes - If your due date aligns closely with large monthly expenses, ask your issuer to change it to later in the month to prevent maxing out your card each billing cycle.
• Consolidate high-rate balances - Consider doing a balance transfer to pay off high-rate card balances with a new intro 0% APR card. This can free up credit limits on old cards.
• Use cash or debit - Try using cash or debit cards more frequently so you aren't constantly charging to your credit card. Leaving the card at home helps.

Alternatives if your credit limit is low

If you have a low credit limit or your credit limit recently got cut, you may wonder what you should do to avoid going over-limit.

If you've had a low credit limit for a while and currently have a stable job, you may want to request a credit limit increase. This can be a good idea if you have good credit (scores 670 to 739) or excellent credit (scores 740 and greater) or if you haven't updated your income in a while and make more money than what's listed. Take note, your card issuer may pull your  credit report during the request, which may cause a small, temporary ding to your credit score.

On the other hand, if your credit limit was reduced, you may want to consider other options. Cardholders with good payment history and a stable job should call their card issuer and ask for reconsideration. Explain that your account is in good standing and that you have a stable source of income to pay off your bill. Ask the reason for the reduced credit limit. This conversation may shed light on why your limit was lowered and potentially result in your credit limit increasing, though there is no guarantee.

As an alternative or in addition to requesting a higher limit on your current card, consider requesting credit line increases on any other credit cards you have, if you have the good credit to qualify. Even a small bump on another card can help give you more overall spending power and lower your credit utilization.

Lastly, if you want to apply for a new credit card, first check your credit score to assess your approval odds. Compare cards and consider options suited to your particular credit score. However, be cautious of overspending with a new, higher limit. Stick to a low utilization rate on any new cards.

FAQs