To some, overindulging and the holidays are one and the same. From that extra helping (or two) of pie to imbibing one-too-many mulled wines, overdoing it can feel like all part of the fun.
Not even your finances are safe. As long as you have credit cards, no price is too high for the festivities.
But even the best cards have their limits. If you hit yours with all that merrymaking, you’ll want to read this.
What Can Happen if You Max out Your Credit Card?
1. You Lose Access to This Account
A credit card isn’t like your typical personal loan. It’s a revolving product, just like a line of credit. This means you can withdraw funds against its limit, as long as you have funds available.
By maxing out your card, you’ve used up your entire limit. You don’t have any more space to make additional purchases, and your card may be declined until you pay off what you owe.
2. You May Pay More in Fees
If it takes you a while to pay off the holidays, you’ll spend extra money on monthly payments that include interest and finance charges. You might also face additional fees if you exceed your limit and tap into a cash advance.
3. You Raise Your Utilization Ratio
Maxing out your card may also deliver a blow to your score if your payments get shared to a credit bureau. That’s because your utilization ratio is one of the biggest factors contributing to your score, second only to payment history.
Your utilization ratio represents how much of your available credit you use as a percentage. Typically, you don’t want to exceed 35%. However, maxing out means you’ve hit 100%.
If you can’t pay off what you owe in one lump sum, you’ll carry over a high utilization ratio that may lower your score.
4. You Need Another Safety Net in an Emergency
Take the plastic out of your wallet, and how will you pay for an unexpected expense?
If you normally rely on credit cards in emergencies, you may have to look for an alternative safety net. This might not be easy if your merrymaking has weakened your credit history, but there are online options that may help.
By going online, you can conveniently research potential options from a lender like Fora Credit. After rate shopping, you may find an online line of credit that provides an alternative to your usual plastic.
Financial Tips for You in the New Year
While a holiday hangover can last long after you take the decorations down, it isn’t forever. Get Finances Back on Track
Always Make the Minimum
Like an online line of credit, a card comes with a minimum payment. Make sure you pay this at the very least each month.
Talk to Your Creditors
If you’re having a hard time meeting the minimum, reach out to your creditor to learn about refinancing options. Some companies have plans in place to help low-income or at-risk customers.
Use a Budget
Ignoring a budget often goes hand in hand with overspending during the holidays. Luckily, getting back on track can be as easy as returning to this spending plan.
Reorganize your budget to cut unnecessary spending like takeout, online shopping, booze, and subscription services. You can use this freed cash to go above and beyond the minimums on your debts.
Dealing with holiday debt isn’t easy, but don’t give up. Freeing up your credit cards is worth the extra effort!