Here's What Happens When You Max Out Your Credit Card

U.S. credit card debt is once again on the rise, which means some spenders may unfortunately soon be faced with at least one maxed-out credit card.

During the COVID-19 pandemic, U.S. credit card debt actually declined as Americans took advantage of reduced budgets, stimulus payments and enhanced unemployment benefits. Now that the economy is opening back up, U.S. credit card debt is once again headed higher.

In the second quarter, Americans added $17 billion in net credit card debt, bringing total U.S. credit card debt up to $790 billion, or a little more than $3,000 per U.S. adult on average.

If you happen to max out a credit card at some point, it’s not the end of the world. But you may need to take action to get back on financial track.

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Maxing Out A Credit Card: When you're approved for a credit card, the card comes with a credit limit, or a maximum amount of credit you can access via the card. When a person maxes out a credit card, it simply means their credit card has reached its credit limit.

Your bank or financial institution may notify you when you are approaching or have reached your credit limit on a particular card. If not, you will likely find out the hard way when your credit card gets declined. Once a credit card is maxed out, you are typically no longer able to use it until you have paid down your debt.

Your credit rating will also likely take a hit, especially if you are unable to pay off the debt in a timely fashion. You may also incur additional fees or penalties depending on the credit card issuer and the terms of your agreement. Some issuers allow you to temporarily exceed your credit limit, but charge you a fee or a much higher interest rate on over-limit transactions.

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Taking Action: Even though you likely will no longer be able to use your card once it is maxed out, you will still be incurring interest on the balance of the card. Since credit card interest rates are typically very high, it’s best to take action immediately if possible to rectify the situation.

The first thing you may need to do if you max out your credit card is to contact your bank or issuer and discuss your options. The bank may potentially be willing to raise your credit limit or waive certain fees if you are in good standing and have a high enough credit rating.

If you can’t get your credit limit on the maxed-out card raised, consider transferring all or a portion of your balance to another credit card, especially if it has a higher limit. If you have no other cards and a reasonable credit score, consider applying for an additional credit card. Many issuers have special promotions for new customers that will waive fees for balance transfers and even potentially charge no interest on the balance for a limited introductory period.

The final step in the process of managing a maxed-out credit card is to sit down and come up with a budget and a plan for paying off the debt. If your debt seems overwhelming or you don’t feel confident in your budgeting skills, consider meeting with a credit counseling agency to work together with a professional to get your finances back on track.