Credit cards are great for building credit, purchasing large items conventionally, collecting points, shopping online, and so much more, but they can get you into serious financial trouble if left unchecked. Trust me, I know. A maxed out credit card can reverse your good credit and send your personal finances (and wellbeing) into chaos—especially if you’re paying bills with credit and opening new cards to pay off others.
I suffered from a maxed out credit card and recovered. In all honesty, I had fun racking up the debt and realize that most debt comes from a place of necessity and unforeseen circumstance. However, regardless of how one got into debt, the way out is quite similar. It took time, hard work, income, and planning, but once I freed myself from debt, a weight lifted that I didn’t realize I was carrying around with me for years.
Here are the steps I took to recover from a maxed out credit card.
How I recovered from a maxed out credit card
First, some context. I finished university, had money saved up (though obviously not enough), and, like many young Millennials, decided to travel before joining the workforce. I went to Southeast Asia for six months and once I got home, struggled to avoid compounding debt. That is, my credit debt kept growing.
Next thing I knew, I had maxed out my credit card and was getting overdraft security ads for my bank account. Here’s what I did to recover from a maxed out credit card.
1. Got a job—increased my income
In my case, I needed income to start paying off my debt. That is, I got a job and several odd jobs to boost my income fast. For others who already have a steady income, this step might be better related to increasing one’s income. We wrote a blog post recently on when it’s time to get a side hustle going. If your credit cards are maxed out and your funds are strapped, you may want to consider picking up odd jobs.
2.Put the credit cards in a block of ice—stop using the cards
Stop using your credit cards. Don’t increase your limit or open up new cards to pay for the others, that’s only making matters worse. Put them in a bowl of water and stick them in the freezer. If you have multiple cards, consider consolidating them into one with one monthly payment. If you have monthly bills that are automatically charged to your credit card, consider putting a stop to that in order to control where your income is going.
3. Call my creditors—decrease my interest rates
Negotiate a lower interest rate and credit card fees, if possible. Most credit card companies have lower interest rate credit cards available and you can transfer your debt from one to another. I had an interest rate of 18% when I maxed out my card and negotiated it down to an 11% rated credit card. Depending on how much you owe, this could save you hundreds in interest payments.
4. Pay the minimum monthly payments
To save your credit score from going from good to bad to worse, always pay at least the monthly minimum payments and on time on all of your credit cards.
5. The turning point: Pay off debt as quickly as possible
At some point, every time I paid my minimum payment and a small portion of my credit card, bills that were automatically being charged to my cards cancelled out my payments. Suddenly I was back where I started—maxed out.
I only started to make a real dent in my debt when I made a budget of monthly living expenses and income, cut all unnecessary spending, and paid of large portions of my debt bi-weekly or even more frequently. I made credit card payments after every pay check, tip pool and payment from odd jobs. Only then did I start to lower the accumulating interest and bring the debt down.
6. Learn from my lessons
I recovered from a maxed out credit card because I focused all of my energy and extra non-essential money on paying it off as quickly and swiftly as possible. The more I paid off, the better I felt. One day, I had accomplished the unfathomable: my credit card had finally reached zero.
I’ve learned from my lessons on spending, getting out of debt, and saving for a rainy or sunny day (and the unexpected). Anything is possible.