The mistake I made while paying off $15,000 in credit card debt — and how to avoid it

I clicked "submit payment" and felt free.

It was January 2021. I sat in my Brooklyn, New York, apartment, staring at credit card statements on my laptop. After 10 months of budgeting, I could afford to finish paying off my $15,000 in debt — my highest balance since 2010, when I opened my first credit card.

When I was 18, my mother warned me: "This is only for emergencies." I defined "emergencies" loosely, like charging my brother's bachelor party limo or buying a suit for work.

I'm not alone. Americans' debt, mostly on credit cards, reached $998.4 billion in July, according to the Federal Reserve. Maybe the pandemic was a wakeup call: Last year, Americans paid a record $83 billion in credit card debt, according to a study by personal finance site WalletHub.

Fortunately, I'm among them. But instead of sipping my celebratory mezcal, I was regretting a huge mistake: While paying my debt, I stopped using my cards entirely, causing one of my two accounts to close "due to inactivity."

Seems trivial, but it had consequences.

At first, I looked for simple solutions.

My bank didn't offer any refinancing services, so I applied online for a debt consolidation card to collect my debt into one, low-interest monthly payment. But my balance was too high, and the word "denied" flashed across my screen.

Then, the pandemic hit. Unprepared for any more financial speed bumps, I wrote a strict budget. I couldn't make more money, but I could cut back.

First, I put $4,000 from my $5,000 emergency fund toward my debt — a strategy endorsed by personal finance expert Dave Ramsey, as CNBC Make It noted in 2018.

My federal student loans were in forbearance, meaning my monthly payments were paused, along with any accruing interest. So I rebudgeted, sending my prepandemic student loan payments toward my credit card debt instead.

Add my first two government stimulus checks, totaling $1,800, and my debt balance fell to $5,950 in three simple steps.

I kept paying my cards' minimums, $419 per month. After 10 months, my debt was down to $1,760. Side-hustle cash paid the difference: extra weekends dogsitting and selling old belongings.

By January, my debt was paid. Two weeks later, the bank that represented one of my cards sent me a letter: "Unfortunately we've made the decision to close your credit card account."

I thought I did everything right.

I didn't want to add to my debt while paying it down, so I didn't use my card until I reached a $0 balance. But my bank marked the account "inactive" and terminated my credit line without notice.

My credit score dropped from "good" to "poor" overnight. How did I not know?

"If you have underutilized credit, meaning not putting anything on it for a perpetual basis, they can sometimes close those down," explains Tim Maurer, a member of CNBC's Financial Advisor Council. "That can actually hurt your credit report."

That's because of a metric called debt-to-credit ratio. It's the amount of credit used compared to what is available. If what's available drops, your ratio rises, thereby hurting your score.

My available credit was halved when my card closed.

"Inactivity is the most common reason for credit limit decreases," says Ted Rossman, a credit card senior analyst at personal finance website Bankrate. "We've seen this during past recessions as lenders get nervous customers won't pay them back."

In 2008, the Federal Reserve found that 20% of banks cut prime borrowers' credit limits. It happened again during the pandemic, according to data from the Federal Reserve's Senior Loan Officer Surveys.

I spoke with three customer service representatives to reopen my card. Each told me I'd have to reapply for a new card. With a "poor" credit score, I had less chance of approval.

It wasn't worth trying, since I still had my other credit card. But since experts recommend using 30% or less of your available credit, and now I have much less credit available, I have a strict spending limit, which I monitor constantly.

There's no foolproof solution for avoiding my situation, outside of avoiding debt in the first place — but you can keep some tricks in mind.

The method Rossman recommends for keeping credit monitors at bay is surprisingly simple. "Using a card occasionally, even for small purchases that you pay off right away, can help you ward off unwanted decreases," he says.

But depending on your bank, you might have to use that card more than just "occasionally." Last year, Rossman says, he received a letter that one of his credit limits was cut in half, because he rarely used more than 10% of his limit. "I was using it, just not a lot," he says.

Quickly, Rossman called his bank's customer service team and asked for his old limit. Fortunately, the bank said yes, but that won't happen every time, Rossman says.

Don't use more than 30%. Always use more than 10%. Finding that sweet spot is hard. Doing it regularly feels impossible — but I'm sticking to it.

Today, I still have one credit card active. I set limits on monthly charges, and pay my statement on time and in full. My credit score is up 20 points since the beginning of 2021.

I'm using my repayment budget — the $419 per month, and my student loan payments, which are still in forbearance — to rebuild my emergency fund.

There will certainly be some other bump in the road ahead. When that happens, I'll take a deep breath and start researching again.

Until then, I'm going to enjoy some mezcal.

Sign up now: Get smarter about your money and career with our weekly newsletter

Don't miss:

Overdraft fees hit another record high this year—here’s how to avoid them

Here’s how much money you’d have if you invested $1,000 in Domino’s pizza 10 years ago