Consolidating maxed out credit cards seems like the best way for you to solve this financial issue. Maxing out these cards is not as uncommon as you think. According to one survey, more than half of consumers have maxed out their credit cards at least once. The results also revealed that maxing out card limits is more popular among Gen Xers.
What makes credit card debt dangerous is the fact that it is accompanied by a high-interest rate. Your credit card limit is the highest unpaid balance that you can get out of your card. When you reach this limit, penalty charges will be imposed. This will be added to your already growing balance.
Since this involves a big amount it is obviously hard to pay it all off at once. That means you have to pay for it in installments. This will cause you to carry a balance over to the next month. When that happens, finance charges will be added to your credit card debt. This is calculated based on your current balance and interest rate. Maxing out your card limit means a huge finance charge will be added to your debt as long as you carry it over to the next billing cycle.
It is not hard to imagine how quickly that can grow your debt.
This is the reason why consolidating maxed out credit cards is a good idea. It will shift your debt from a high-interest account into a low-interest loan. As long as you choose a non-revolving credit account, your monthly payments will be fixed. It is true that you still have to pay interest on the debt, but it will be lower than credit cards and based on what you can afford.
What to do when consolidating maxed out credit cards
While consolidating maxed out credit cards is effective, that does not mean you can take it easy. There are specific tasks that you need to do in order to make it successful.
Set aside your maxed-out credit cards
When you consolidate your cards, you will be using the loan that you borrowed to completely pay it off. That will leave what used to be maxed out credit cards to have a zero balance. That can pose a huge temptation for spending. To avoid the urge to give in to your overspending habits, you need to set side these cards so you will won’t be able to use it. If you have to resort to extreme measures like putting your card within a block of ice – then do it.
Having a maxed-out card would tempt you to do a lot of things. When you find out that you reach the limit of your cards, you will be tempted to increase it. This is a bad idea. It will only give you more room to borrow more. So just consolidate all your credit card debts so you will not make your debt situation worse. Just remember to borrow a loan with a low-interest rate. If it is also high, you will not really benefit so much from the debt relief program.
Update your budget plan
Another thing that you can do is to update your budget plan. This plan will help you remain in full control of your financial situation. But you have to update it after consolidating maxed out credit cards. You need to indicate how much money this debt relief program will cost you each month. You have to make sure that your income can cover the monthly debt payment fund. It should also be marked as a priority so you will not accidentally use the money on something else. If it turns out that you cannot afford to cover all your debt payments, then you need to do something about your other expenses. Your payments for the consolidated debts should be given priority.
Increase your debt payments
Making sure that you have funds to pay the debt is not enough. You need to make an effort to increase your debt payment fund. Consolidating maxed out credit cards will make it easier to pay it off but it will still benefit you to pay it quickly. The more you pay each month, the faster you can achieve debt freedom.
Of course, it is harder to succeed in consolidated credit cards if you have a low-income. It will take more effort but it is possible as long you know the strategies to apply. For instance, you can convert your budget plan into a frugal one. This will lower your spending and give you more extra money for debt payments.
Another option is to increase your income. This means getting a side gig that will help you meet payments. Or you can ask for a raise. Setting up a passive income will also help you increase debt payments after consolidating maxed out credit cards.
Commit to paying debts no matter what
Prioritizing your debt payments is very important. Things happen in life that will bring new payments that need to be met. You have to learn how to prioritize your expenses. As much as possible, you have to stay current on your debt consolidation payments. If you cannot meet the minimum monthly payment, you need to talk to your lender. That way, you can work out a new repayment plan that you can afford. Even if you will end up asking for a lower monthly payment, they will still try to work out something with you. It is better to get a smaller amount as long as you keep paying your dues.
How to avoid maxing out credit cards
If you think that consolidating maxed out credit cards is hard, then try to avoid it in the first place. According to reports, 86 million Americans fear that they will max out their credit cards while paying for an expensive item. If you feel this way before making a purchase, that is already a sign that you have a lot of debts. Your balance is close to the limit that you fear one purchase will tip you over.
Obviously, you need to exert effort to avoid this. Here are tips that will help you avoid the need for consolidating maxed out credit cards in the first place.
Pay your balance in full
This is a simple rule that will keep you from maxing out your cards. If you cannot pay for something in full by the end of the month, then do not proceed with the purchase. As long as you can pay within the grace period of the purchase (time between the date of purchase and the due date), you only have to pay for the actual amount you spent. There is no need to add the finance charge. That makes it easier to manage the debt and stay on top of it.
Plan your credit card spending
If you want to pay your balance in full, you have to plan your credit card spending. Make sure that it is included in your budget plan. You can allot $300 each month to spend on your credit card. When you reach this amount, you need to stop using it. Anything else that you need should either be purchased the next month or with cash.
If you do it this way, you will have the funds to pay off your balance in full.
Do not rely on credit cards for emergencies
Finally, you can avoid consolidating maxed out credit cards once you stop relying on it during emergencies. Some people have emergency credit cards. This is usually a bad idea. The high cost of health care in the country will quickly make you max out this card. So just save up some cash to use as your emergency fund. This will keep you from the headache of paying off your huge credit card debts.