Can you consolidate maxed out credit cards? Of course, you can! The challenge is in making sure that you are successful in your efforts to pay off this huge amount of debt.
But what exactly does a maxed-out card mean?
Every credit card has a limit. If your credit card limit is $5,000, a maxed-out card means your unpaid balance has reached that amount. Unless you pay it off, you will not be able to use your card for purchases. It will also lead to a lot of negative effects on your financial situation. This is why it should be avoided at all costs.
Unfortunately, a lot of people failed to realize just how dangerous a maxed-out credit card is. A survey revealed that almost half of the respondents had a maxed-out credit card, either in the past or present. It is not surprising to get this statistic since there are some people who rely on their credit cards to pay for their basic necessities.
If you are one of the people who were unfortunate enough to have reached the limit of their credit card, do not worry. There is a way out of your problem. It will be hard and you have to be determined to succeed. But with hard work and self-discipline, you should be able to achieve debt freedom.
Steps to consolidate maxed out credit cards
There are many ways to deal with your credit card debts. One of the best options is to consolidate maxed out credit cards. This involves combining your debts and putting them under one credit account. If you choose the right strategy, you should be able to get a lower interest rate and even lower monthly payment. You will get better terms and this can make it easier to completely pay off the balance you accumulated.
Here are the steps that you can follow to succeed in your efforts to consolidate maxed out credit cards.
Make a list of your maxed out cards
Start by making a list of all your maxed out cards. Even if you only have one, include in the list all the other debts that you can combine. Make sure these debts do not have prepayment penalties. Usually, the best debts to consolidate are those with a high-interest. That way, you can save money on the interest payments of your debts.
Check and revise your budget
After making a list of all your debts you should go and check your budget. At first, you will check all the expenses that you are paying for. Scrutinize every expense and see which of these you can stop spending on. The idea is to live below your means. Obviously, maxing out your credit card means you were spending beyond what your income can afford. You need to stop this immediately. If your overspending is the cause of your maxed-out card, then it would not matter if you consolidate it. You will accumulate another set of debts in no time at all. You need to change your spending habits and make sure you revise your budget so it will help you live well below your means.
Find out how much you can afford to pay monthly
Once you have revised your budget, calculate how much you can afford to pay each month. A maxed-out credit card means your minimum payment requirement is probably high. Consolidating will give you the chance to lower your monthly payment. But before you find a solution, you need to know what your payment capabilities are. Calculate the amount that you can comfortably afford to pay towards your debts. If it is not enough, you might have to opt for a debt reduction instead of just consolidating maxed out cards.
Choose a debt consolidation strategy
Now that you know the monthly payment that you can afford, it is time to choose a debt consolidation strategy. There are many strategies to consolidate maxed out credit cards. If you think that you cannot control your credit card spending, opt to use debt management. This option involves the freezing of the credit card accounts included in the debt management plan. That will force you to stop using your cards until you have completed the repayment plan.
The other options include debt consolidation loans, balance transfer, etc. Make sure you understand the pros and cons of these options so you can make a smart choice about it. The right option will not just help you save money and get out of debt, it will also set you up so you can go on to your next financial goal without issues.
Talk to your creditors
Finally, you need to talk to your creditors after you have chosen the best strategy to consolidate maxed out credit cards. If you plan to use debt management, the credit counselor will communicate on your behalf. But if you opted to consolidated on your own, it is your responsibility to let them know about your plans.
While you are talking to them, try to negotiate your debts – at the very least, have them waive some of the fees and charges. This will help lower the amount of debt that you have to pay off. The less you pay, the more you can save.
Dangers of a maxed-out credit card
Once you realize that you reached your credit limit, it is important for you to act on your debts as soon as possible. Failing to consolidate maxed out credit cards immediately will lead to various negative effects on your finances.
With the household debt exceeding the amount owed before the Great Recession, it is obvious that consumers are treading dark financial waters. With the recession looming before us, it is important to start being proactive about current debt situations.
When you have maxed out credit cards, it is easy to fall into a financial crisis. Here are a few things that you will go through if you do not do something about your credit cards.
It is hard to pay off
Since maxing out your credit cards means you reached the limit, that means you have a lot of debts already. With a higher balance, the minimum payment requirement is higher too. Obviously, it will harder to pay it all off in one go. Every time you carry over a balance to the next billing cycle, a finance charge will be added to it. This is calculated based on the interest rate and current balance of the card. With both of these factors high, you can expect that the finance charge will also be high. This is why high-interest credit card debts are dangerous. If it is maxed out, it enters into a whole new level of problems that can compromise your financial future.
It can lead to more charges and fees
Another negative effect is charges and fees. Most credit card companies will raise your interest in the maximum rate once you reach your credit limit. This is their way of discouraging credit card holders from maxing out their cards. Usually, the highest rate is 30% or more. It depends on the credit card company and the terms of your credit card. Sometimes there are other penalties and charges that will be added to your balance.
It can damage your credit score
Maxing out your cards will also damage your credit score. One of the factors affecting your score is credit utilization. This is the ratio between your credit balance and credit limit. The closer the balance is to the limit, the more it will affect the credit utilization rate negatively. If your credit utilization rate is bad, your credit score will suffer. The ideal utilization rate is 30%. Any higher and it will pull your score down.
It can compromise your financial future
Finally, your maxed out cards will compromise your financial future. Instead of being able to invest your money, save for retirement or use it to grow your personal net worth, you have to set it aside for your debt payments. Not only that, but you have to delay a couple of milestones like buying your own home, getting married, or having kids. Your personal and financial progress will be slower if you max out your credit cards. This is why you need to find a way to consolidate maxed out credit cards. That way, you can find yourself free from debt in a couple of years. You can then focus on rebuilding your financial future.