Chris O'Shea
Credit cards can be a great benefit when used responsibly. But sometimes, credit cards can be your worst enemy, especially if you max out a card. If you have a maxed-out card and are finding it difficult to navigate, here are some steps to remedy it.
Don’t Use Other Cards
It might be tempting to use another credit card now that one is maxed out. However, try your best to avoid that. A maxed-out credit card not only carries heaps of debt, but it also damages your credit score. The last thing you want to do is add more debt to this situation.
Revise Your Budget
The first thing to do when you have a maxed-out credit card is to revise your budget.
Breakdown of Needs vs. Wants
Look at your budget in terms of needs and wants.
- Needs are things that keep your household functioning.
- Housing (mortgage or rent)
- Utilities (electric, gas, water, internet)
- Transportation (car, car maintenance, fuel, public transit)
- Food (groceries, household supplies)
- Insurance (health, auto, homeowners, or renters)
- Savings (emergency fund, retirement)
- Debt (credit cards, mortgage, student loans)
- Wants or discretionary expenses are additional budget items that can be cut, if needed.
- Entertainment (concerts, movies, sporting events)
- Travel (vacations, weekend getaways)
- Dining out (restaurants, takeout, food delivery)
- Gym (fitness clubs, classes, subscriptions)
- Cut back on the “wants” category.
- Use that money to pay down your debt.
Keep in mind that this isn’t permanent. Once you dig out of debt, you can add those “wants” back into your budget.
Figure out a Plan
Now that you have some money freed up, it’s time to figure out how you are going to pay down the credit card debt. Think things through and pick a strategy that you will stick with. Here are a few options:
Balance Transfer Card. If you qualify for a balance transfer card, it might be a good option. You want a card with a 0% interest offer for at least 12 months. This will allow you to pay down the debt without being saddled by interest.
Avalanche Method. Make a list of your debts from the highest APR (interest rate) to the lowest APR (interest rate). Pay down the highest first, then work your way down.
Snowball Method. With the snowball method, you pay down the smallest debt first, then work your way up to the largest. This strategy’s strength is in the motivation you get from seeing progress.
