What to Do If You Max Out Your Credit Card?

If you've maxed out your credit card, take these steps right away: stop using the card completely, create a budget, pay more than the minimum each month, consider a balance transfer card, talk to your creditor, or look into debt consolidation.

Using credit cards is a fact of everyday life. The internet and online shopping apps have dramatically shifted how people pay for things. It's not hard to see how running up a large credit card balance can happen.

Let's break down how to tackle this situation properly.

What happens if you max out your credit card

Canadians told BDO in 2023 that credit card debt is a big worry, with 29% saying it's their most stressful form of debt.

Maxing out your credit card has many consequences. As already mentioned, your card will likely be declined when you try to use it.

It is possible that some low-value transactions may go through even if you are at your credit limit, but this varies from card to card. If this happens and you go over your credit limit, you will likely have to pay an over-the-limit fee.

A higher balance also means more interest payments.

Your credit score will also drop. How much depends on each person's situation, but a maxed-out credit card will mean a decrease in your score. This is because a maxed out card often shows you're spending beyond your means.

A higher balance also means higher minimum payments. The increased price per month may mean you have trouble keeping up with your bills.

When a maxed-out credit card isn't a problem

There are times when maxing out your credit card doesn't mean you're in financial trouble.

For example, if you get your first credit card while attending post-secondary school, you'll probably be given a low credit limit. If, after graduating, you get a job and see your spending habits increasing because you can now afford more, you may end up maxing out that lower credit limit.

If you know you're able to make the payments each month of your current credit limit without any financial worry, you can ask your credit card company to increase your limit. Only do this if you are COMPLETELY CERTAIN you can pay off each month in full.

Steps to take if you max out a credit card

Freeze it

If you max out your credit card and know you can't afford to increase the limit, stop using the card immediately. That means not using it online, or in person.

Delete your credit card information from any apps or internet browsers it's currently saved onto. Cancel subscriptions that are linked to your credit card. Leave it at home when you go out.

The one surefire way to ensure you don't use the card is to call the credit card company and have them freeze the card for you. This way you won't be able to make any purchases with it even if you want to.

Budget

If your credit card is maxed out, you might be living beyond your means. It's time to budget.

For a very simple budget, write down all your known expenses like rent, internet, phone bill, food, subscriptions, transportation, etc.

See if there are places you can cut spending. Don't order in or go out for food, have home cooked meals to save money instead, cancel one of your streaming services, shop at a cheaper grocery store chain, don't get that daily $5 coffee.

Everyone has some way of saving money through budgeting.

Pay more than the minimum

Paying only the minimum on a maxed-out credit card will not reduce the balance quickly. You'll end up with hefty interest payments, and it will take years to pay off the entire card.

If you pay more than the minimum each month, you'll:

• Save money on interest payments

• Pay down your balance faster

• Potentially improve your credit score

Setting up automatic payments through your bank to pay off your credit card is one thing you can do to make the process simpler as well.

If you have money at the end of the month you can afford to put towards your credit card, do it. Even if it's just $20, It makes a big difference in the long run.

Balance transfer credit cards

The biggest problem with credit cards is the interest on your debt. One way of dealing with this is to get a balance transfer card. Balance transfer cards offer a period of much lower interest rates than normal credit cards.

These cards work exactly like how the name sounds. You transfer your debt from one card to the balance transfer card. By moving your debt to a card with a lower interest rate, you can tackle your debt without paying those high interest fees.

Some cards will offer you a period of 0% interest on the balance you transfer over. If you know you can pay off your debt quickly without having to pay interest, it's an option worth considering.

You will need good credit to be approved for one of these cards so if you've struggled with credit for a while this may not be an option available to you.

Contact your creditor

Negotiating with your creditor and making them aware of your situation may allow you to reach a settlement you can afford. They may have you pay less money for longer or even accept less than you borrowed.

Debt consolidation

Another way of reducing your interest payments is debt consolidation. If you have multiple debts, debt consolidation allows you to combine them all into one payment with a single interest rate. That interest rate will likely be less than the one for your credit card.

With one payment, it also simplifies your payment process each month. You don't need to track multiple debts.

If you keep using your credit card after debt consolidation though, it can lead to more debt.

What NOT to do

If you max out a credit card it's not just about what you do, but what you shouldn't do. If you have debt you don't want to make it worse.

Avoid payday loans at all costs

If you're in debt, the worst thing you can do is add more. Payday loans will not help you solve your debt problem. Payday loans are short-term loans and they come with incredibly high interest rates and fees.

You're only allowed to take out a payday loan for a couple of weeks. So, while it might let you pay a certain expense if you can't use your credit card, you'd then need to pay off the payday loan very quickly. And there are some big penalties if you don't.

If you think the interest rate on your credit card, which is usually around 20%, is high – payday loans can have interest rates close to 600%!

Don't close the account

You may think that simply closing your account might help somehow. This will hurt you as well though. Even if you pay the balance and want to close the account to avoid using it again, this will likely damage your credit score as well by erasing credit history.

You're better off keeping the account open and working to pay off the debt than simply closing it.

Don't ignore it

Often people want to ignore their financial problems, hoping they will work themselves out at some point.

Ignoring a debt doesn't just mean ever-mounting bills, it also means more stress and anxiety. It can also limit the options available for you to get out of debt.

We know Canadians don't like to talk about their debts. BDO's latest Affordability Index showed 56% of the country say financial issues are harder to discuss than relationship or health issues.

Your debt doesn't define you

A maxed-out credit card isn't the end of your financial story. It's a moment that calls for clear thinking and practical action. The steps we've covered can help you turn things around, but remember that seeking help isn't a sign of failure.

Whether you tackle it yourself or work with professionals, what matters is taking that first step toward financial recovery.