4 reasons why maximizing your credit cards could be a major disaster
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Maximizing your credit cards means you charge up to the card limit. For example, if you have a $ 1,000 line of credit and load $ 999 on the card, you have reached its maximum. You have borrowed the maximum amount authorized by your card issuer and you no longer have available credit.
Maximizing your cards has serious consequences. Here are four big reasons why you should avoid this to avoid potential financial disaster.
1. You will not have credit available if you need it.
Credit cards should ideally not be used as a substitute for an emergency fund. Ideally, you should have enough money in the bank to cover several months of living expenses in case unexpected costs arise.
Unfortunately, a lot of people don’t live in an ideal world. You might not have any money saved for unforeseen expenses, and surprise costs can still arise anyway. If this happens, not having any available credit on your cards could be a big deal. You may be forced to take on very expensive debt, such as payday loans.
Keeping some credit available can help you avoid this, although you should try to build your emergency fund as soon as possible. Using credit cards to finance unexpected costs can still be costly, and the debt you incur in this situation could make it harder for you to live within your means in the future because you will have a monthly credit card bill. credit to be paid. To help you determine how much to save in an emergency, use this emergency fund calculator.
2. You might end up going over the limit
If you’ve maximized your cards, you don’t have much room for error. You could end up accidentally billing something that takes you over your credit limit. This is a violation of your card agreement which could result in additional charges. You don’t want to make your cards even more expensive by charging you an over limit penalty.
3. You could damage your credit score
Your credit utilization rate is a determining factor in your credit score. It refers to the amount of credit you have used against your total available credit, and it should be kept below 30% in order to avoid lowering your score. Ideally, it should be even lower than that if you want to keep your credit history as strong as possible.
Maximizing your credit cards would give you a 100% credit ratio (or almost if you’re near your credit limit). This could lead to a drop in your credit rating, which can affect all aspects of your financial life. You could be refused a loan, have a landlord refuse to rent you or require a larger security deposit, or get credit at very high rates only.
4. Paying off your debt could be very difficult
Obviously, the more you charge on your credit cards, the harder it will be to pay off your balance in full, especially because credit cards tend to have very high interest rates. If you’ve run out of cards, you may not be able to pay off the balance and you may have to pay interest until you bring the balance down to $ 0. The higher your balance, the more your money will go towards interest, and the more expensive and difficult it will be to free yourself from your debt.
Now sometimes you can’t help but maximize your cards because you have expenses that you need to charge. If this is the case, try to work out a debt repayment plan as soon as possible. If you haven’t run out of cards yet, try to avoid doing so unless it is absolutely necessary. That way, you can save yourself these four big inconveniences of charging up to your credit limit.
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