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What happens if you exceed your credit card limit?
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In today’s challenging economic landscape, many Americans are facing financial pressures on multiple fronts. For starters, persistent (but cooling) inflation has driven up the cost of consumer goods and the high interest rates meant to temper it have made borrowing more expensive. These hurdles have placed significant strain on the average person’s budget, leading many to become reliant on their credit cards to fill in the gaps between their income and expenses.
Recent data paints a stark picture of this trend, with the total credit card debt nationwide now sitting at a record high of $1.14 trillion. As more people have turned to their credit cards to cover essential expenses like food and fuel, there has also been a notable increase in maxed-out credit card accounts, with 20% of credit card accounts now at their credit limits.
But while many cardholders have no choice but to use their credit cards right now, it’s important to understand that there are repercussions for maxing out your credit cards and exceeding your spending limits. Below, we’ll detail what happens when you cross that threshold — and what options you have if you find yourself in this situation.
Don’t let the credit card debt issues compound. Find out what your debt relief options are here.
What happens if you exceed your credit card limit?
Exceeding your credit card limit can trigger a series of consequences, including:
Over-the-limit fees and higher interest rates
Many credit card issuers charge a fee when you exceed your credit limit, typically ranging from $25 to $40 per instance. In some cases, your card issuer may also increase your interest rate as a penalty for spending more than your limit. This double whammy of fees and higher rates can quickly compound your credit card debt, making it even more challenging to bring your balance back under control.
Learn how to take control of your growing credit card debt today.
Declined transactions and reduced credit limit
Once you’ve exceeded your limit, your card may be declined for further purchases until you pay down what you owe. This can be particularly problematic if you rely on your credit card for essential expenses. Plus, your card issuer might lower your credit limit as a risk-mitigation measure, further restricting your purchasing power and potentially impacting your credit utilization ratio.
Significant credit score impact
Exceeding your credit limit can have a substantial negative effect on your credit score, as it increases your credit utilization ratio, which accounts for about 30% of your FICO score. A high utilization ratio suggests to lenders that you’re overextended financially, potentially making you a higher-risk borrower. This can lead to a significant drop in your credit score, impacting your ability to secure loans or favorable interest rates in the future.
Loss of rewards and account privileges
Some card issuers may suspend or revoke rewards programs for accounts that exceed their spending limits. This means you could lose out on cashback, points or miles you’ve accumulated. You might also lose certain account privileges, such as balance transfer offers or the ability to request credit limit increases.
Increased scrutiny and potential account closure
When you exceed your spending limit, your account may be flagged for closer monitoring, potentially leading to more frequent account reviews. In extreme cases, repeatedly exceeding your limit might prompt the issuer to close your account altogether. An involuntary account closure can further damage your credit score and leave you without a crucial borrowing tool.
Long-term consequences for future credit
A history of exceeding credit limits can make it harder to qualify for loans or new credit cards in the future. Lenders view this behavior as a red flag, indicating that you might struggle to manage credit responsibly. This can result in loan denials, higher interest rates on approved credit or lower credit limits on new accounts.
What to do if your credit card debt is out of control
If you find yourself struggling with overwhelming amounts of credit card debt, there are several debt relief options available:
- Debt consolidation: Consolidating your debt involves taking out a new loan to pay off multiple credit card debts. The goal is to secure a lower interest rate, making it easier to pay off what you owe.
- Balance transfer: Similar to debt consolidation, a balance transfer involves transferring high-interest credit card balances to a new card with a lower or 0% introductory APR, temporarily reducing the cost of the interest charges.
- Debt management plan: With a debt management plan, the goal is to create a structured repayment plan that may include negotiating lower interest rates with your creditors.
- Debt forgiveness: When you pursue debt forgiveness, the debt relief company you work with negotiates lump sum payments with your creditors that are less than the full amount owed.
- Credit card hardship programs: Many issuers offer temporary hardship programs that can lower interest rates or waive fees if you’re experiencing financial difficulties.
The bottom line
While the current economic climate has made credit card reliance a necessity for many, it’s important to understand the risks of exceeding your credit limits. If you find yourself approaching or exceeding your limit, take proactive steps to address the situation, whether it’s cutting expenses, seeking additional income sources or exploring your debt relief options. Ultimately, taking action sooner rather than later can help mitigate the long-term financial impacts of credit card debt.
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U.S. stocks plummeted in one of their worst days of the year after the Federal Reserve forecast Wednesday it may deliver fewer shots of adrenaline for the economy in 2025 than it had earlier projected.
The S&P 500 fell 178 points, or 3%, pulling it further from its all-time high set a couple weeks ago. The Dow Jones Industrial Average lost 1,123 points, or 2.6%, while the Nasdaq composite dropped 3.6%.
The Fed said Wednesday it’s cutting its benchmark interest rate for a third time this year, continuing the sharp turnaround begun in September when it started lowering rates from a two-decade high to support the job market. Wall Street loves lower interest rates, but the Dec. 18 cut had been widely expected by Wall Street.
Why is the stock market down today?
Investors were unsettled by the Fed’s forecast for fewer cuts in 2025, even though many economists had already been paring their expectations given sticky inflation.
“Markets have a really bad of habit of overreacting to Fed policy moves,” Jamie Cox, managing partner for Harris Financial Group, said in an analyst note. “The Fed didn’t do or say anything that deviated from what the market expected—this seems more like, I’m leaving for Christmas break, so I’ll sell and start up next year.”
The bigger question centers on how much more the Fed could cut next year. A lot is riding on it, particularly after expectations for a series of cuts in 2025 helped the U.S. stock market set an all-time high 57 times so far in 2024.
Fed officials released projections on Wednesday showing the median expectation among them is for two more cuts to the federal funds rate in 2025, or half a percentage point’s worth. That’s down from the four cuts they had expected just three months ago.
“We are in a new phase of the process,” Fed Chair Jerome Powell said. The central bank has already quickly eased its main interest rate by a full percentage point, to a range of 4.25% to 4.50%, since September.
What happened to the stock market today?
Asked why Fed officials are looking to slow their pace of cuts, Powell pointed to how the job market looks to be performing well overall and how recent inflation readings have picked up. He also cited uncertainties that will require policy makers to react to upcoming, to-be-determined changes in the economy.
While lower rates can goose the economy by making it cheaper to borrow and boosting prices for investments, they can also offer more fuel for inflation.
Powell said some Fed officials, but not all, are also already trying to incorporate uncertainties inherent in a new administration coming into the White House. Worries are rising on Wall Street that President-elect Donald Trump’s preference for tariffs and other policies could further juice inflation, along with economic growth.
“When the path is uncertain, you go a little slower,” Powell said. It’s “not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”
One official, Cleveland Fed President Beth Hammack, thought the central bank should not have even cut rates this time around. She was the lone vote against Wednesday’s rate cut.
Wall Street’s worst performers
The reduced expectations for 2025 rate cuts sent Treasury yields rising in the bond market, squeezing the stock market.
The yield on the 10-year Treasury rose to 4.51% from 4.40% late Tuesday, which is a notable move for the bond market. The two-year yield, which more closely tracks expectations for Fed action, climbed to 4.35% from 4.25%.
On Wall Street, stocks of companies that can feel the most pressure from higher interest rates fell to some of the worst losses.
Stocks of smaller companies did particularly poorly, for example. Many need to borrow to fuel their growth, meaning they can feel more pain when having to pay higher interest rates for loans. The Russell 2000 index of small-cap stocks tumbled 4.4%.
Elsewhere on Wall Street, General Mills dropped 3.1% despite reporting a stronger profit for the latest quarter than expected. The maker of Progresso soups and Cheerios said it will increase its investments in brands to help them grow, which pushed it to cut its forecast for profit this fiscal year.
Nvidia, the superstar stock responsible for a chunk of Wall Street’s rally to records in recent years, fell 1.1% to extend its weekslong funk. It has dropped more than 13% from its record set last month and fallen in nine of the last 10 days as its big momentum slows.
“As we wrote in our 2025 outlook a couple of weeks ago, stretched positioning and sentiment left stocks vulnerable to a sell-off,” Jeff Buchbinder, chief equity strategist for LPL Financial said in a note about today’s market sell-off. “The big jump in inflation expectations and related bond sell-off was a convenient excuse. Once support from tech evaporated, no other groups were able to step in to fill that gaping hole.”
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