February 03, 2022 | By: Mike Bergeron

What Happens When You Don’t Pay Your Credit Card in Canada?

Debt Management

Having excessive credit card debt can be stressful for almost anyone. When you’re struggling to make ends meet, it’s all too easy to lean on your credit card(s) to cover your immediate expenses. But, the purchases you put on your credit cards have to be repaid eventually.

What happens when you don’t pay your credit card in Canada? What steps can creditors take to recover their money? Most importantly, what can you do to get out of debt and get collection agencies off your back?

Let’s take a look at what happens if you don’t pay your credit card and what your options are for handling this debt. Hopefully, having this information will help you better prepare yourself, so you can save some time and trouble later!

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What Happens When You Don’t Pay Your Credit Card in Canada

Let’s say you’ve fallen behind on your credit card payments. What happens now? The exact sequence of events may change slightly depending on your credit card provider, and the steps you take with them, but here’s a basic outline:

What Happens if You Don’t Pay Your Credit Card for a Month?

When it comes to credit cards, if you miss a payment for one month, you might get hit with a few different penalties depending on the creditor and the terms of your credit card agreement. 

Some creditors may send you a friendly reminder to make your payment, or you might receive a notice via email, letter, or phone call asking you to make a payment.

It can go something like this: We know life can get busy and you may have overlooked your payment. Please make it as soon as you can. If you’re having trouble keeping up with your payments, you can reach out to our team. If you’ve made your payment, please disregard this notice. Please be aware that your interest rate can increase if we do not receive payment.

Other creditors may report you to the credit bureau. If the credit card continues to go unpaid, the interest rate may increase for a set time (or even permanently), which your credit card provider would have likely warned you about.

This is one of the reasons why it’s important to carefully review the credit card agreement before signing up. The agreement will tell you important information about your obligations and the penalties you can expect if you don’t meet them. 

In most cases, the penalties for being late or not making the minimum payment for a single month won’t be too severe. However, even if the credit card provider doesn’t charge a fee or increase the interest rate, the late payment may end up on your credit report—which negatively impacts your credit score. This may affect your eligibility for certain financial services later on.

What Happens if You Don’t Pay Your Credit Card for Several Months?

While missing a single payment may not be a huge deal, especially if you catch up the following month, missing multiple payments may cause a bigger problem.

The exact timing might vary, but if you miss a series of payments, the creditor will start to send you multiple warnings asking you to resolve the account and get it in good standing. If the creditor believes they may not get their money back, they can end up sending your account to collections (which can be an internal department of the credit card company or a third-party debt collector, like a collection agency). 

It’s always best to try to resolve the outstanding debt with the original creditor first and their internal collections department. If the debt cannot be resolved through those means, the creditor will likely assign the account to a third-party debt collector, like a collection agency.

From there, you may start receiving collection calls, letters, emails, and text messages urging you to take care of the debt.

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What Happens if I Don’t Pay My Credit Card for Five Years?

If you go a few years without making any payments on your credit card, odds are the credit card company has taken more severe actions. 

For example, after just a few months in arrears and nonpayment, the company you owed the original debt to is likely to assign your account to a third-party debt collector, like a collection agency, who will then try to recover the money from you. Alternatively, your creditor or the debt collector may try to take you to court.

The timing of the lawsuit might vary depending on how proactive the creditor or collection agency is. Some are very quick to take someone to court, regardless of the balance owed.

Some provinces also limit how long a creditor can wait to take legal action. For example, some provinces (like British Columbia and Saskatchewan) only allow creditors to file a lawsuit for up to two years after acknowledgment of the debt. Meanwhile, Quebec allows up to 3 years, and other provinces (like Manitoba, Prince Edward Island, and the territories) allow up to 6 years after acknowledgment of the debt for a creditor or debt collector to take legal action.

Whether your outstanding debt is assigned to a third party or handled by the creditor’s internal collections department, one thing is certain: You will have to deal with notices (and possibly other extreme debt reclamation measures, like collection calls or being taken to court) until the debt is resolved. Plus, the resulting negative impact on your credit report can affect your future financial goals for years. 

What if I Don’t Pay My Credit Card and Leave the Country?

Most debt experts would not recommend simply abandoning the debt and moving to a new country, and trying to ignore the problem of outstanding credit card debt. Leaving the country doesn’t wipe out the debt. It will still be there (and likely continue to grow due to interest, late fees, and other penalties).

Creditors can still try to reach out to you to recoup their money and the unpaid debt can affect your credit report for years. In extreme cases, a creditor may try to pursue a lawsuit in your new country of residence by hiring a collection agency or law firm from there (depending on the country you move to).

So, it’s better to find a way to deal with your debt rather than try to ignore it, even if you’re considering leaving the country.

What Can I Do About My Credit Card Debt?

You may be wondering what you can do about your credit card debt. Thankfully, there are a few different options you can take to eliminate your credit card debt and avoid the hassles that come with missing credit card payments.

If you find yourself struggling to make your minimum monthly credit card payments, it might be time to consider one of the following options:

Reach out to Your Creditors

Sometimes the easiest solution is to just pick up the phone, call your creditor, and explain why you’re having trouble making payments. They may not be too sympathetic but they might suggest a different repayment option that works for your budget or give you other options. The important thing is to ask because you never know unless you try.   

Get a Debt Consolidation Loan

If you have a lot of unsecured debt but still have a relatively good credit score, you might want to ask your bank about getting a debt consolidation loan. With good credit, your bank may offer you favourable terms on the loan—helping you pay off your debt faster and saving you money on interest in the long run. 

However, if you are approved for a debt consolidation loan, it’s important to be careful with your credit card spending.

Paying off the balance on your credit cards with the loan may tempt you to start using the credit cards again—which can result in building up even more debt. Consider refraining from using credit until the debt consolidation loan has been paid off in full to avoid future debt problems.

Use a Personal Line of Credit

Paying your credit card with a personal line of credit (a way to borrow money from the bank up to a certain amount) is another option. A personal line of credit is different from a debt consolidation loan in that the interest rate isn’t a factor until you start using the funds available. 

Interest on a personal line of credit doesn’t start accumulating until after you start using it, which is why some people have lines of credit that they rarely (if ever) use. 

Technically speaking, if you can get a better interest rate on the line of credit than you could on your credit cards, then it might be worth considering using the line of credit to pay off your existing credit card debt. However, some of our clients have gotten themselves into more debt trouble using this strategy.

For example, you can max out the line of credit and then continue to use the credit cards you just finished paying off. Not only would interest accumulate via the line of credit—and at an alarming rate depending on how much funds were used—you’ll also have to keep up with monthly debt payments for your credit cards, too. 

Also, a line of credit is revolving credit, so that limit is always there, which can be tempting to use. Having a line of credit can provide a false sense of financial security and cash flow, which can end up in having a lot more debt. If you’re going to consider using a line of credit to pay off high-interest debt, like credit card debt, you must be disciplined in your spending.

Choose a Debt Consolidation Program (DCP)

Debt consolidation programs are a great alternative to seeking a debt consolidation loan or a line of credit—especially if you have a low credit score that makes qualifying for a loan or additional credit difficult.

If you choose a DCP, a non-profit Credit Counsellor works with you and your creditors to find an arrangement that helps you get out of debt while still being able to keep up with all your monthly obligations and other bill payments. This often involves negotiating with your creditors to significantly reduce or completely stop the interest on your unsecured debts that are on the program.

One of the main benefits of choosing a DCP is having the convenience of paying off your debts with one affordable monthly payment. This makes it easier to keep track of your debt repayment and lets you see the light at the end of the proverbial tunnel. Most DCPs can be completed in less than four years.

When on a DCP, you will need to get rid of your credit cards. For some, this can actually be a positive since it removes the temptation to use credit while still trying to get out of debt. The good news is if you absolutely need to use a credit card to book a flight or hotel, there are alternatives.

Call Credit Canada for Help with Credit Card Debt

If you need help getting out of debt and are not sure if you should consider a debt consolidation program or another option, contact Credit Canada for help!

Our certified Credit Counsellors will work with you to find the best way to eliminate your credit card debt and stay debt-free afterward! If you’re drowning in bills and collection notices, get on the road to being debt-free and give us a call!

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