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Tapping your credit card and using mobile payments can make transacting a breeze, but accidentally maxing out your credit card can be more harmful than you think.

What are the negative impacts of maxing out your credit card? Let’s find out!

 

# You can’t use your card until you make a repayment

This goes without saying, once you max out your credit card you can no longer enjoy the benefits of using the card if and when you really need it. Any new transactions you make could be declined, including automatic payments or direct debits.

The sooner you pay off your credit card, the sooner the balance is brought back under the limit for you to use it again.

 

# Fees and charges may apply

If your credit card account was established before 1 July 2012, you could get charged an overlimit fee, however, you can choose to opt out of this option by contacting your provider.

 

# You might struggle to make the repayments

Your minimum payment is based on the size of your credit card balance and as your balance increases, so does your minimum monthly repayment. If you haven’t been diligent in paying off more than the required minimum amount every month, you could find yourself struggling to pay off the entire amount you’ve spent, plus the accrued interest charges.

 

# It could hurt your credit score

As part of Comprehensive Credit Reporting, your repayment history information is now being reported on your credit report. With a higher minimum payment (as a result of maxing out your card), chances of incurring a late payment or defaulting are more likely and could indicate to lenders that you’re in financial stress, which in turn can affect your ability to obtain more credit in the future.

 

If you’re getting close to maxing out your credit card or just want to ensure you stay under the limit, here a few things you can do:

 

1. Spend less

Stop your credit card spending entirely – take it out from your wallet so you don’t get tempted. Don’t forget to also remove it from your digital wallet! If you want to take it one step further, try to use only cash for all your purchases for a month.

 

2. Track your spends

Check your card balance regularly by setting customised account alerts or use these apps to stay on top of your finances.

 

3. Create a plan

Budgeting is the key to understanding your spending habits. Identify and cut back on the unnecessary variable expenses (like coffee and takeout) as these expenses could snowball your debt further.

Read more on our top tips to clear your plastic debt to help you get out of the debt cycle sooner.

 

Want to keep track of your credit health? Credit Savvy helps you manage your credit score and credit file information anytime, anywhere, and it’s always free.

 

Sign up for free today