So You’ve Maxed out Your Credit Cards … Now What?

First things first: don’t panic! Next, consider using the debt snowball or the debt avalanche methods to dig yourself out of debt.

Credit cards hold many advantages over cash. They’re much more convenient, both to carry and use. If you lose a credit card, you can cancel it and get a new one. If you lose cash, on the other hand, you don’t have too many options other than putting up “Lost Cash” posters with a picture of the cash you lost.

But credit cards also come with a major downside that can lead to other downsides. Because credit cards essentially allow you to take out loans on the spot, you can easily be spending money you don’t have. Even if you’re able to pay the minimum required amount on your bill, interest will start accumulating and the debt will begin piling up.

That only gets worse the more credit card bills you can’t pay. And it’ll be really, really bad if all of those credit cards are maxed out. So what should you do if you’ve maxed out your credit cards?


Don’t panic.

It can be easy to panic when you’ve maxed out all your cards. It is not good news for your credit score, and odds are those credit card bills are not the only bills you’re struggling with. But panicking, while understandable, is not going to be helpful.

“The first thing to do if you’ve maxed out your credit cards and you’re worried you can’t pay the bills is to not panic and make any rash decisions, like getting out more loans to meet your financial commitments,” cautioned Stephen Hart, CEO of Cardswitcher.

“Borrowing money to pay off what you owe will just end up trapping you in a vicious cycle of debt, where you end up owing more money in the long-term. Whilst it might solve problems in the short-term, in the long term this approach will just store up problems and amplify them.”

Leslie H. Tayne Esq. (@LeslieHTayneEsq), Founder and Head Attorney at Tayne Law Group (@taynelawgroup), offered a similar suggestion:

“Asking for a larger credit limit or applying for another credit card may seem like a simple solution. However, this is only a temporary solution that will only lead to more problems down the road when you’re in more and more debt that you can’t pay off.

“Both of these solutions will only enable you to continue your spending habits. Payday loans are another source that can be tempting in these situations, but once again, these will only lead to longer-term problems, because payday loans essentially thrive on trapping you in a debt cycle.”

Make a plan to pay it off.

Now that you’re not panicking, it’s important to start figuring out how you’re going to actually pay off your debt. One popular strategy is the “debt snowball” method.

“If you’ve maxed out your credit cards, a critical step to getting out of the red is paying off the highest-rate debt first,” advised Kimberly Foss (@KimberlyFossCFP), President and Founder of Empyrion Wealth Management. “This gives you a ‘snowball effect’: As you pay down the high-interest-rate debt, less money is required to feed the ‘interest monster,’ which allows even more money to be diverted toward other financial goals like reducing other debt, saving for retirement, investing, etc.

“The point I try to make to my clients is that every dollar paid as interest to someone else is a dollar that cannot compound for you. Paying off debt—especially high-interest debt—is like a double boost: You are improving your cash flow and directly increasing your overall net worth at the same time. Then, if you can leverage that extra cash flow by increasing investing and saving, it becomes a triple boost.”

But maybe you’d prefer to try a different method?

“There are two ways you can start to tackle this debt,” explained Marissa Sanders, personal finance expert at Simple Money Mom (@simplemoneymom). “One way is the debt snowball. This is where you will begin paying the smallest balance first. Once that card is paid off then you will apply that payment to the next smallest balance. Continue this cycle until you have paid off all your debt.

“The next method is called the debt avalanche. This is when you will pay toward the highest interest rate first. After it is paid off, you will apply that payment toward the next highest interest rate. Continue this cycle until you have paid off all of your debt.”

Consider getting additional help.

You might not be able to handle your credit card debt on your own. Fortunately, there are options you can consider for relief.

“If all else fails, seek professional help,” recommended Tayne. “If you are struggling to repay your debt on your own or find the process to be stressful, don’t be afraid to ask for help. Sometimes significant problems require bigger steps.

“If your debt is keeping you down, it may be time to look into other debt repayment options or visit a debt consolidation expert. Many companies and nonprofits are designed to help you resolve your debts and eventually be debt-free.

“Before signing up with any debt relief service, do your research and make sure they are reputable. While you can take on the task of settling credit card debt on your own, using a debt settlement attorney who understands how creditors work, will most likely bring you the best settlement results and savings in the negotiating process.

“A professional will be well-versed in what creditors are looking for and will be your best bet going up against large national banks, credit unions, collection agencies, and multiple legal representatives.”

You can also look into settling.

“Debt settlement programs are for people who are seriously struggling and often the debt prevents people from making serious changes to their spending habits,” explained Tayne. “Proper debt settlement helps people get a fresh start and enables them to get their life back on track.

“It’s important to note once you do have relief of debt, it is still imperative to take the necessary steps to stay out of debt. Carefully research the matter. Look for someone who you can go see who has been doing this a long time, and this is all they do.

“Try not to listen to other debtors since their situation is not necessarily the same as yours. Reputation and time in the industry are essential. Your gut feeling, too, is important. You need to make sure they are going to do right by you and not right by them.”

Follow these tips moving forward.

Proper credit card use is important. It’s how many people actually build their credit score. We’ve even got some tips for you to check out. But right now, you have to make some changes to keep from maxing out your cards again in the future.

“If you’re worried about paying your bills, you may need to take another look at your budget,” suggested Tayne. “Many times, the reason people fall into debt is that they are living beyond their means. Are there places you can cut back? If you’re having trouble finding full budget lines to cut out, see if there are spots where you can downsize.

“For example, are you using all the data you’re paying for in your cell phone plan? Can you cut back on your cable or cut it out entirely? Are you paying for subscriptions you’re not using? You may need to make some temporary sacrifices, but any money you free up can help you get closer to what you need.”

It won’t be easy, but it’s possible to get past having all of your credit cards maxed out. Once you’re on the other end, you can start building your path to a better financial future. To learn more about managing your money responsibly, check out these other posts and articles from OppLoans:

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Contributors

Kimberly Foss (@KimberlyFossCFP) is the New York Times bestselling author of “Wealthy by Design: A 5-Step Plan for Financial Security.” She is also the founder and president of Empyrion Wealth Management™, where she brings both technical expertise and real passion to her work with clients, including affluent family stewards, women in transition, and thriving retirees. Kimberly began her career at Merrill Lynch as the youngest female account executive in its long history. She later left the commission-driven environment of a stock brokerage firm to found E&A Investment Advisory, which grew into the independent Empyrion in 2002. Kimberly is a thought leader in the financial industry and frequently shares her expertise on the markets, financial planning, and investing with leading media outlets—including The Today Show, Good Morning America, CNBC, Forbes, The Wall Street Journal, Fox News, Fox Business, MSN Money, Investor’s Business Daily, and U.S. News & World Report.
After working in the financial industry for several years, Stephen Hart left his role as Chief Financial Officer at WorldPay to launch the UK’s first payment processing comparison site, Cardswitcher. Nowadays, he helps SMEs save money on their payment processing costs.
Marissa Sanders is the founder and author of Simple Money Mom (@simplemoneymom). She is a personal finance expert and coach who aims to educate women about finances so that they can budget better, save more money, and become financially free. Her desire to teach others about personal finance came from her own success in becoming debt-free and building a net worth to over $100k in less than two years on one income.
Leslie H. Tayne, Esq. (@LeslieHTayneEsq) has nearly 20 years’ experience in the practice area of consumer and business financial debt-related services. Leslie is the founder and head attorney at Tayne Law Group (@taynelawgroup), which specializes in debt relief.