Capital Investment Advisors

Card way over the limit? Here’s a debt payoff plan

Take on extra work, sell items to erase card debt – then get a better card

Dear Opening Credits,

How can $947 be charged on a $300 secured credit card recently opened and another $75 within the same billing cycle? – Kandy

Dear Kandy,

What a mess! And what a horrible introduction to the world of credit.

Here’s what you need to know (and maybe how you came to have $947 in charges on your $300 credit limit secured card):

Making sense of your statement

1. That $947 owed:It is possible to charge more than a credit card’s limit, but only if you gave the credit card issuer permission to let you do so.

As set forth in the Credit CARD Act of 2009, a card issuer must first present you with the option to “opt in” to being able exceed a credit line. You also would receive a disclosure about the related fees, which can be up to $25 for the first month that you’re over the limit and $35 if it happens again within six months.

2. That $75 fee: It’s possible that $75 fee in your first billing cycle is an annual fee. Credit One cards often have a $75 fee. I was unsuccessful in reaching you to find out more about your credit card account.

3. The credit score impact:Until you get this resolved – and pay down your card debt – your credit scores are tanking. Credit utilization is a major credit scoring factor. Financial experts used to say that keeping your utilization under 30 percent was good, but as close to zero as possible is best. You currently are 300 percent over your credit utilization.

Here’s what you should do now

To prevent this problem from becoming more expensive and damaging, develop an emergency payoff plan now.

1. Call your card issuer.

Ask why you were able to charge over your $300 credit limit on a secured card. Ask about any over-limit fees you may have been assessed (and may be assessed until you are back under $300 owed).

Explain that you are trying to get your account back in good standing, and ask if they will remove any of the fees. There is no guarantee they will, but it doesn’t hurt to politely inquire.

2. Power down the balance.

Use whatever financial resources you have to dramatically reduce your debt. If you don’t have cash on hand, maybe you can scrape some up by selling unnecessary possessions.

For example, a late model smartphone in decent condition can net $100, and plenty of people have such electronics cluttering up a drawer.

Consider hosting a garage sale to get rid of all the items you don’t need. You might even post a sign reading, “I’m on a debt-free mission: All proceeds going toward my credit card bill!”

3. Bring in extra income.

If you have any spare time, ask to work extra shifts or hours, and use every penny that you earn to pay down your card debt.

Get a side gig. Perhaps you can drive for a ride-share company, walk dogs or babysit after work.

4. Reduce your expenses.

For at least a few months, pare spending to the barest of basics. Reroute every dollar you typically spend on things like dining out and entertainment to this account.

How to reduce your debt to zero

By using one or a couple of these emergency payoff methods, you should be able to erase your debt on this credit card. When you are under $300, the over-limit fees will stop, but the interest will keep accumulating until you reach $0 owed on this card.

When the balance is where it should be  not just under the limit but at zero – your credit scores will start to turn upward.

To prevent going over your limit in the future, set the brakes. Ask to opt out of going over your credit limit. That way, if you try to charge more than your limit, the transaction will be denied.

How to turn your credit scores around

From this point forward, use whatever cards you have in a positive way. Using credit wisely is not complicated, but it does require commitment and attention.

Here’s an easy two-step plan to charge judiciously and keep your credit score trending up.

1. Only charge amounts that you can easily afford to repay in full when the bill comes due.

2. Keep a close watch on your account statements. Mistakes can happen. When they do, address them before they spiral out of control.

Kandy, don’t ever let yourself get into a mess like this again.

Check Out: Don’t wait until due date to pay first credit card bill

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