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Maxed out your credit card? Here's what to do from a financial expert who's been there and paid it off

Credit limits aren't meant to be reached, but economic uncertainty makes it easier to max out a credit card. Here are some steps to take if it happens to you.

Photo courtesy of Caroline Beffa Photography

Bola Sokunbi is a certified financial education instructor and author of "Clever Girl Finance," but she admits to making a handful of money mistakes along the way. 

In college, Sokunbi applied for her first credit card and subsequently maxed out the $2,000 limit without taking into consideration its high 24.99% interest rate until she later paid the price.

"At the time, I just wasn't paying attention and didn't really understand how debt and interest worked," Sokunbi tells CNBC Select. When asked if she remembered what she maxed out her credit card on, Sokunbi says, "That's the sad part; I bought clothes and I don't remember what else!"

Maxing out your credit card means you've reached your credit limit — and if you don't pay that balance off in full immediately, this can hurt your credit score and cost you significantly in interest.

Below, Sokunbi gives advice on paying off a maxed-out credit card and how that may differ in today's economy given the coronavirus pandemic.

Normally, you should pay off your maxed-out credit card as soon as possible

Under normal economic circumstances, when you can afford it and have enough disposable income to exceed your basic expenses, you should pay off your maxed-out card as soon as possible.

That's because when you charge up to your credit limit, your credit utilization rate, or your debt-to-credit ratio, increases. This causes a drop in your credit score. 

The credit bureaus don't like to see that you are using all your available credit, as it indicates that you are spending beyond your means.

Conventional wisdom says you should always pay your balance off in full by its due date, but when your card is maxed out you should try to pay off your balance balance as soon as the maxed-out charges post to your account. Waiting to pay off the balance until the end of your billing cycle increases the likelihood that your credit card issuer will report the high utilization rate to the credit bureaus (which you want to avoid).

Experts generally suggest keeping your credit utilization rate below 30%, but a maxed-out card would report that you're stretching yourself thin by using 100% of your available credit.

If you can't pay the credit card off completely, you could make multiple payments during the month to at least lower the balance a little. If your credit score is good, you could also consider asking for an increase in your credit limit (though having a maxed-out credit card may make your approval for a credit limit increase less likely).

If you can't pay it off immediately during the coronavirus pandemic, make a plan for how you will over time

You may have already maxed out your credit card, or expect to, without knowing when you can pay it off — and that's OK. Millions of Americans are filing for unemployment and perhaps relying on their credit card just to get by if they don't have enough cash in their emergency savings.

"I think, given the state of things with jobs and the economy as a result of Covid-19, many people spent their last paycheck without realizing that it was their last one and, as a result, are finding that they have to leverage debt to get through this season," Sokunbi says.

If you are cash-strapped and have already maxed out your credit card, the next step you can take is to make a plan.

You may have to use credit cards to stay afloat during this time, but Sokunbi suggests setting a goal to use yours mindfully. She says to focus on your essentials (food, medicine and gas if you need your car), minimize non-essential spending and, in the meantime, put a plan in place to pay your credit card off when things go back to normal. Write it down if it helps you.

Sokunbi was working when she maxed out her credit card in college, but she created a repayment plan that helped her.

"I ended up putting as much as I could from my part-time campus job, after I paid for my core essentials (cell phone bill and groceries), to pay it off," Sokunbi says. "It took me several months because I was earning $116 on average every two weeks with a small bonus here and there." To afford school and other living expenses, Sokunbi had a partial scholarship, reduced campus housing and some help from her parents.

Ask for help

If a payment on your maxed-out credit card is due soon, let your credit card issuer know you are facing financial hardship — whether that be a job loss or reduced working hours for you or your partner.

Major card issuers like American Express, Chase and Bank of America are offering assistance to their members who have been financially burdened by the coronavirus pandemic (read our list of credit card assistance programs).

"Ask what options are available, an explanation of each option and if your credit will be affected," Sokunbi says. "Keep in mind that you can rebuild your credit. Yes, credit is important, but right now you want to focus on putting food on the table and staying safe."

Consider transferring your debt

If you're carrying a high balance on a maxed-out credit card, you may want to consider a balance transfer card that gives you a promotional interest-free period so that your payments are being applied directly to your credit card balance and not towards expensive APR fees.

Most balance transfer cards require good or excellent credit (scores 670 and above), like the U.S. Bank Visa® Platinum Card, but the rere are a few where applicants with fair credit may qualify.

You will also want to consider any fees charged with balance transfers. Many cards will charge a 2% to 5% fee (or a $5 minimum) for each transfer, but there are some balance transfer cards with no fee that are probably better fitted if you have a larger debt load. 

Information about the U.S. Bank Visa® Platinum Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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