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The Holiday Season and Credit Cards

As we approach this Holiday season, I want to caution you to make sure you are not charging OVER your credit card limit. This can be very damaging on multiple fronts! Let’s explore how this costs you actual dollars today and then how it will affect your credit score. This in turn will most likely end up costing you a lot more in the long run as well. 

First, if you charge over your credit card limit, you can be charged fees that are similar to bank overdraft fees. If by chance, you were to charge over your limit again, you can be charged even higher fees than you were the first time. After paying those immediate fees, the interest rate you pay on the entire balance can increase. This will naturally result in higher interest payments over the life of your debt.

Second, your credit score will also be negatively affected for multiple reasons:

  1. If your credit card reports the overage to the credit bureaus, your score will decrease
  2. Anytime you charge over approximately 30% of your credit card’s total limit, your credit score starts to drop. So, charging over your total credit card limit is incredibly damaging to your score.

Overall, this shows the credit bureaus that you are having a hard time handling the credit that you have been extended, often referred to as your credit utilization ratio. A lower credit score will result in an inability to get as good of a rate on future loans including cars and homes. Ultimately, again, this will end up costing you quite a lot of money.

Now that we’ve discussed how going over your credit card limit can be damaging, let’s discuss what options you can look into instead of overcharging. First off, you could possibly look into getting a personal loan at the bank to consolidate those debts into a set, manageable loan with a re-payment period. Once these debts are rolled into a structured loan, your credit score will most likely immediately jump. The shows the credit bureaus that you are no longer struggling to manage your debt, and are now making structured, on-time, monthly payments.

Also, if you have any equity in any of your assets (such as a home or a car), it is also possible to consolidate your debts within those loans. Because these debts are considered collateralized debts, you will get lower interest rates than a personal loan and certainly lower than the average credit card.

However, there are dangers to doing these consolidations because they essentially “empty” out your credit cards and it puts their balance back at 0. If you aren’t disciplined enough, this just allows you to charge your cards back up and get into the same problem again. That would then essentially double your debt load. Before you fall back on old habits after taking the steps to consolidate your credit card debt, you must look inward and be honest with yourself about how or why this debt happened in the first place. When individuals end up charging their credit cards again, it usually indicates a bigger problem of overspending and now paying enough attention to expenditures. This can be solved by having a working budget, or even a “spending plan”. Ultimately, it is important that you make sure to get a handle on these issues quickly as to avoid the consequences of credit card debt and overspending.

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