Today, I am going to share something weird and surprising. When I was 20, Max and I used to be best buddies. While both of us applied for a credit card, Max got an offer approved, and since he was using many credit cards and handling different loans at that age, he got a handsome $10k annual limit on his card. I was so tempted to swipe Max’s card that I requested him to hand it over to me, promising him to take care of the repayments.
Max could never say no, so he left me with his CC. Do you know what happened next? Well, here’s the story of maxing out a credit card irrationally. Read on to learn the least expected consequences.
The Emotional Toll
Maxing out Max’s credit card initially seemed like an easy way to make a purchase and pay off my debts. I kept on swiping the card wherever I could. However, what I couldn’t realize, my irrational act would come with a significant emotional toll.
In the immediate aftermath of maxing out his credit card, I experienced a sense of relief. I made a lot of purchases and paid off some of my debts.. I also took Max for a luxurious dine-out and movie night. After all, it was $10k! However, to my surprise, the euphoric feeling didn’t last long. When spending insanely, I felt like the richest person in the world – but when I was done, things changed a little. I started realizing what I actually did.
While Max allowed me to use his credit card, he left it with me because he trusted me. He believed I wouldn’t do anything that could impact his credit and financial stability. However, I couldn’t live up to his trust – my irresponsible spending would not only burden my shoulders with huge debt, but it directly impacted Max’s hard-build financial record. I realized that he could face difficulty obtaining credit or loans in the coming days. Besides, he might need to face strong and inconvenient legal consequences.
I started feeling extremely ashamed and guilty. How could I have caused financial harm to someone I care about? I couldn’t even face Max. What could I say to him? I was sure, by then, he came to know about my deeds, but surprisingly he didn’t reach me, nor did he seek any explanation.
My emotions were compounded by the knowledge that I had broken my best friend’s trust and probably damaged my relationship with him. This thought pushed me into deep anxiety and stress. Moreover, I had the burden of repaying the $10k debt. This stress started affecting my work, personal goals, and relationships with my loved ones.
The Financial Consequences
Besides the emotional toll I was paying for my foolish deed, I had more to see and face. Max finally called me up and asked me to manage the situation at any cost. The financial consequences I called for include the following.
Impacted Credit Score
I was unaware of the fact that the credit utilization ratio of the user is an important metric of credit score calculation. Ideally, I should have stayed between 30% credit utilization, but I maxed out the card, which could significantly impact Max’s credit score. Moreover, Max was using only two cards at that time, which increased his overall credit utilization. Later, his credit was dropped by as much as 50 points because of my stupid act.
Declined Additional Transactions
As I reached Max’s card limit, he couldn’t use the card for a long time – until I helped him pay down the balance. He had medical emergencies and other important commitments, but he couldn’t manage any of them as his issuer consistently declined additional transactions.
Higher Interest Rates and Fees
The card issuer levied high fees and interest rates for breaching the standard utilization norms. This made things even more difficult for me. Everything added up so quickly that I was left with a gigantic amount to pay off. I was not earning millions and didn’t have handsome savings. I was almost clueless about what to do and how to escape this turbulent situation.
Affected Lifestyle
As I started paying a significant amount to Max to help him clear the mountainous credit card bill, things started looking even more complicated. I was paying almost 80% of my monthly earnings to pay off the bills. Consequently, I was struggling to manage my necessary expenses. I had to leave my rented house and start living in my car.
I didn’t have enough money to buy utilities and groceries. A bottle of wine became my wildest dream. I didn’t know anyone who could help me with a short-term loan to pay off the bills. Overall, life turned miserable, and I was living for the sake of repaying my debt.
Legal Action
Well, that was the end of the story. Though not intended, I finally missed paying three consecutive bills to Max. He just warned me verbally for the first two, but he already lost trust, and when I missed the third bill, he turned vulnerable. Max started believing I was not paying off because I was unwilling to.
He walked straight into a lawyer’s office and held me responsible for breaching trust and attempting forgery. I was already broken; now, this new challenge left me overwhelmed. This lawsuit somehow left a negative impact on my social and professional life.
However, after struggling a lot, I somehow managed to pay back the due amount to Max. While his credit card bills were cleared, Max experienced severe difficulties rebuilding his credit. What was more heartbreaking, he was never ready to trust me again, and we were no longer friends.
After vigorous hard work and tremendous financial hardship, I finally managed to get back to the mainstream of life.
How to Avoid Maxing Out Your Credit Card
Now that I have shared my bitter experience, let me help you with some effective tips to avoid maxing out your credit card.
Set a Budget
The first step to avoiding maxing out your credit card is to set a practical budget on what you can spend and pay off. While setting up this budget, keep your card’s monthly billing cycle in mind. This will help you plan your finances, and you won’t be overburdened with debt.
Remember, a credit card is not meant to serve as a ticket to wish fulfillment. It’s a means to shop conveniently. Thus, don’t dive into things that you can’t afford. Set limits and spend wisely.
Schedule Your Purchases
The billing cycle of credit cards may vary depending on the issuer. Usually, making a purchase at the start of the billing cycle leaves you with the rest of the cycle to pay it off. Moreover, you don’t need to pay any interest if you pay within the stipulated cycle. Therefore, timing your purchases and enjoy more days to pay off your bill.
Avoid Fees
While you can’t ignore the annual fees, you always have the choice to avoid some additional charges. They include the following.
Late fees: Your issuer levies late fees when you miss paying on your due date. You can avoid this fee by adhering to the billing cycle.
Interest fees: If you carry a balance from month to month, you need to pay the interest fees. You can avoid these charges by paying your bill in full every month.
Foreign transaction fees: If you travel frequently, you should consider a credit card with the lowest foreign transaction fees.
Avoid Paying ‘Minimum Due’
You need to pay a specific percentage of your outstanding balance every month, known as the minimum due. However, it’s worth remembering that the minimum due covers only the interest you have been charged – it doesn’t include the amount you have spent. Therefore, when you pay off the minimum due, it keeps adding interest, and you miss paying off your actual debt. Therefore, always pay your bill in full before the billing cycle ends.
Track Your Statements
Your credit card issuer sends you a statement at the end of every billing cycle. Consider checking it carefully. If you find any glitches, reach out to the issuer immediately. Depending on the severity, you can also file a dispute.
While little fluctuations are normal, if you notice any larger changes in your credit score, consider checking your credit reports. Besides, review your credit card statements to figure out what encouraged the change.
Know About The Benefits
Did you know your credit card issuer entitles you to reward points for making purchases? Besides, if you hold a premium card, you may enjoy guaranteed privileges and gift cards, including free air miles, handsome rebates on dine-ins, etc. You can also earn rewards for referring your friends or joining perks.
You can exchange your acquired points for gifts in cash or in-kind benefits. Therefore, carefully check the advantages and make the most out of them. Eventually, you will be able to save significantly this way.
Avoid Cash Advances
While your card issuers will always encourage you to use your card to pay bills or treat yourself to something nice, they hardly make a crucial factor clear. Your issuers treat these checks like cash advances. Falling into this trap could be dangerous as cash advances push you to acquire interest immediately.
Moreover, you are less likely to get any grace period, and they can charge an automatic fee. What’s more concerning, your issuer may not consider the cash advance to be paid off until you clear the entire balance for every purchase you have made.
Don’t Ignore Your Debt
So, you have missed doing the due diligence to limit your credit card bills, and now you are so stressed out that you don’t want to look at them. You haven’t opened your bills and managed to convince yourself that it’s not a problem a lot. Let’s face it – this approach won’t help! When you ignore your bills, the interest rates increase your debt. Moreover, if you miss payments because of this ignorant approach, the interest may increase according to your card’s agreement.
Therefore, instead of overlooking your bills, contact your issuer and request them to renegotiate the agreement terms. In most cases, they help consumers to get their interest reduced. If you get the opportunity, make a strategic payment plan and free yourself from debt at the earliest.
FAQs
What if you max out on your credit card?
Maxing out on your credit card is never a wise idea. You spend your annual limit in a day. However, you will have to pay the bill. Generally, a huge due amount pushes you to make minimum payments which eventually results in surged interest rates. In addition, if you breach the standard credit card utilization norms, you can end up with a severely impacted credit score, a burden of debt, and potential legal actions in cases of non-payment.
What if I misuse someone else’s credit card?
Misusing someone else’s credit card may make you charged with a first-degree misdemeanor. Consequently, you may be jailed for six months. Moreover, you may be asked to pay a fine of $1000.
How to manage a maxed-out credit card?
Managing a maxed-out credit card is indeed daunting. First, you will have to refrain from using your card further. Then, you need to find out what you can pay every month and make a strategy accordingly. You can also explore alternatives like debt consolidation, consumer credit counseling, balance transfer, etc.
How long can it take to recover from a maxed-out credit card?
If your credit score has been dropped because you have maxed out on your credit cards, you will need to wait at least 12-24 months to recover your score. However, in this span, you should not miss any other payments.
