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Consequences Of Maxing Out Your Credit Card

Author: Ethan Taylor

There are over 600 million credit cards held by U.S. consumers and the average credit card debt per household averages about $16,000 according to the Federal Reserve's February 2012 report on consumer debt. Just because your card company offers you a $5,000 limit, doesn't mean that you have to come close or exceed this amount. Some of this debt can be a reflection of carrying a high credit card balance or maxing out on credit card purchases. With the average credit card holder owning 3.5 cards, it's important to manage and keep track of purchases made with your card, so you don't go over your credit card limit or cap.

If for some reason you are nearing your credit card limit or if you go over your limit, there are dire consequences. You should be aware and prepared for the penalties and fees that will incur. When you max out on your card, you owe a debt to the credit card company and you're expected to pay it.

There are various reasons why you shouldn't max out your credit card. First off, you won't be able to use your card at any time once you push your card to the limit.

You will need to pay off a portion of the balance in order for you to use the card again. Some companies will close or put a freeze on the account all together, requiring you to pay the entire amount in full in order to use the card again. You can bet on the fact that your credit score will be affected and will drop. The majority of you credit score is based on how much "available" credit you use.

Thirty percent of an individual's FICO score is affected by what happens on the card. If you had good credit before you applied for the card, that will surely change the course of things, when you max out your card.

If you try to refinance a mortgage loan, apply for educational loans or attain additional credit, the maxed out card will show up on your credit report which look bad on your part and can determine if you are a risk or not.

At the lender's discretion, they can charge a default rate if you max out. These rates can vary depending on the company and can rise as high as 30% or more depending on the balance, which could spell disaster for your repayment plans.

Depending on your credit cap, if you're paying the minimum balance, the repayment can take up to a few years. The balance can include finance and interest charges that accrue along with over-limit fees which can balloon your balance. Don't miss any payments or pay late under any circumstances. This may increase your minimum payment amount and the lender can raise your interest rates which will affect your overall credit score.

What you can do
You can always choose to pay the balance in full; again this is depending on how much the balance is. The best way to prevent going over your credit card limit is to stop the spending and create a budget in advance and establish where and when you want to spend your money. You can also sign up for email or text alerts to tell you when you're about to go over your limit.

Kaia Zawadi is a professional freelance journalist/writer/editor. She regularly writes stories about banking and personal finance for

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