Credit cards are convenient for making purchases quick and simple, and holding one or more cards is a sign of individual credit worthiness and responsibility. With little more than a swipe, a person can access the full range of goods and services to meet his or her needs and desires. Credit cards are an excellent tool, especially if the balance is regularly paid off. Sometimes, for a number of reasons, users need to carry a balance from month to month. Over time, this can decrease available credit and lead to a card that is maxed out.
A card that has the maximum balance can turn into a source of worry and concern for the card holder. It can lower the credit score for the individual. Often one may only make the minimum payment on his or her balances, and in many cases, there are additional fees that make it more difficult to pay off the balance. Most important, maxing out a credit card reduces the ability to use it when emergencies arise. While the reasons for a maxed out credit card vary from one person to the next, all of this can lead an individual to feel doubt and sometimes paralysis.
What can a person do if he or she finds themselves in this situation? There are steps anyone can follow to conquer the problem and reset the credit clock. To tackle the problem one should address four key areas for success: take a credit vacation, seek partners for success, climb the ladder to financial freedom, and prepare for future independence.
Take a Credit Vacation
Everyone likes a vacation; it is a chance to refresh and rest. Now is the time to send the cards on a vacation and stop using them. There are several ways to rest those cards. Send them on a polar tour by freezing them on ice. Find a hidden out of the way place where it is hard to access the cards. Maybe a more permanent solution is in order, try cutting up or destroying the card. One can get creative, but the main point is to stop using any card until the balances are paid off.
Sending credit cards on vacation gives the user a chance to rest and put the financial house in order. Now is the time to take an honest look at finances and prepare for the following steps. It is important to avoid adding new credit during this time (see the partner section for the exception to this rule). Remember, even though the cards are on vacation, do make sure to keep paying at least the minimum balance on all accounts.
Seek Partners for Success
Once the cards are on vacation, it is time to seek out partners for success. A surprising number of partnerships can help an individual reduce the burden of a maxed out credit card, but just as in any relationship, one should take care in choosing a partner. Everyone increases the odds for success when they have a group of supporters on their side.
One important partner can be the credit card company. Some companies will work with customers that have a good payment history. Contact the company to see if it is possible to negotiate a reduced interest rate while making payments. Keep in mind that not all companies will reduce the interest, but some will have balance transfer options with an introductory rate near or at 0% for a limited time (usually 12 to 18 months). These offers are for customers with good credit history and sometimes have upfront fees. These transfers should only be used to consolidate debt or help pay off a greater portion of the balance during the introductory period.
Climbing the Ladder to Financial Freedom
The strain of viewing amounts owed on cards can lead to inaction, but now is the time for action, bold action. If there are multiple cards maxed out, then use a divide and conquer strategy to address the problem. The goal is to knock out each card balance one by one. Select the card with the lowest amount owed and do everything to pay off the balance as soon as possible. Once this card is paid off, use those payments to help knock out the card with the next lowest amount owed. Repeat this process until all card balances have been paid off.
It is easy to select a card with the lowest balance, but finding the extra money to make the payments can be a roadblock to success. Where can anyone find extra money to make more than the minimum payment? First, one should look at all the money spent during a month. It can be hard, but it is important only to spend money on necessities, including minimum credit card payments. Especially look at cutting back monthly expenses for extras such as cable, phone, or memberships (gyms or clubs for example). Any remaining money should be used to pay down the card with the lowest balance. Second, look for ways to make additional money, a second job or selling unused items. Be wary of income opportunities that expect one to pay money to get started. The goal is to make additional money for extra payments.
Once the first card is paid in full, celebrate briefly, but continue to climb the ladder to financial freedom. A wise person will immediately make plans to pay off the next card with the lowest balance by repeating the same steps. The top rung of the ladder will be reached when all balances are paid off. That is the time for the greatest celebration.
Prepare for Future Independence
A final step is to prepare an action plan for future success and redefine use of credit going forward. This step is an ongoing part of climbing the ladder to financial freedom. Set a goal to eliminate all extra cards, and just keep one with the most flexibility. Close all other accounts once balances are paid off. Automate monthly payments, many card issuers have simple, easy to use methods to set up automatic payments. Use a tool such as a spreadsheet or online service to track balances and expenditures. Explore this option and use it to help keep focused on finances. Make the maxed out credit card a part of history never to be repeated. Financially success people know where the money goes, be in the know. Most of all declare an attitude of financial independence.