Updated March 2023
Excessive credit card debt is stressful for almost anyone. But when you’re struggling to make ends meet, it’s all too easy to lean on credit card(s) to cover your immediate expenses. But you have to repay your credit card purchases eventually.
What happens when you don’t pay your credit card balance in Canada? What steps can creditors take to recover their money? And most importantly, what can you do to get out of debt and collection agencies off your back? We’ll answer all those questions with this guide.
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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 depends on your credit card provider and the steps you take with them. Still, here’s a basic outline:
What Happens if You Don’t Pay Your Credit Card for a Month?
If you don’t make a credit card payment after an entire month, you’ll likely face interest fees and a smudge on your credit score. Exact penalties depend on your exact balance and credit card agreement. For example, making just your minimum payment within a month ensures your credit score isn’t blemished. But you’ll still pay interest. If you don’t even make your minimum payment, you’ll face interest and a credit score ding.
We recommend you review your credit card agreement to ensure full awareness of your obligations and any potential penalties. The Canadian government points out that credit card companies might take the following action if you miss payments:
Revoking promotional interest rates
Increasing interest rates in general
Cancelling the credit card
Our take? Option #3 likely won’t happen after only a month. Remember, credit card companies make money when you don’t pay immediately through all that interest. Still, we’d recommend you make more than your minimum payment each month to avoid more interest costs.
But we’re human. And high living costs paired with financial stresses might cause us to fall behind on payments. If that’s the case, you’ll likely hear from your creditor. Fortunately, your creditor will likely try to understand your situation before taking further action. This might look like a higher interest rate or reporting your negative history to the credit bureaus.
Bottom line? A month isn’t the end of the world when it comes to credit cards. Just correct any tardy payment behaviour before it escalates to several months.
What Happens if You Don’t Pay Your Credit Card for Several Months?
If you don’t make payments for several months, the consequences become more severe. That one-month late payment smudge on your credit score will become a giant stain if you have several months of missed payment history. Plus, your interest will compound and exacerbate your debt even more.
Creditors will usually send multiple warnings and requests to repay your balance if it goes unpaid for months. If the creditor doubts your intent to repay the balance, they might send your account to collections. Collections for credit card debt take two forms. The first is a creditor’s internal debt collections branch. If that doesn’t work, they’ll move on to option two: a third-party debt collector, like a collection agency.
If you’ve ever received a collections call, you’re not the only one. But the best way to avoid getting to that stage with credit card debt is to talk with your credit card company immediately. Capital One recommends informing the company ASAP of your situation — then they’ll be more likely to work with you. If you wait months before informing them, they’ll likely send your account to collections.
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, it’s likely your account is already with a collections agency. In this situation, it’s also likely that your credit card company will try to take you to court to recover your balance.
The lawsuit's timing depends on how proactive the creditor or collection agency is. Some are quick to take someone to court, regardless of the balance owed.
Provincial laws and acts also limit how long a creditor can wait to take legal action. For example, Ontario’s Collection and Debt Settlement Services Act states a person can’t be taken to court after two years of the creditor acknowledging the debt. This is known as the statute of limitations. Meanwhile, Quebec allows up to three years, and other provinces (like Manitoba, Prince Edward Island, Nova Scotia, and the territories) allow up to six years for legal action.
Now, what if you still have a credit card balance after the statute of limitations in your province has passed? You might think you’re in the clear — but you’d be wrong. You’ll still experience a serious blow to your credit, which will cause you trouble every time you apply for financial services. We’re talking high interest rates if a lender lends to you at all for mortgages, car loans, personal loans, and other credit cards.
What if I Don’t Pay My Credit Card and Leave the Country?
Most debt experts would not recommend abandoning the debt and moving to a new country. You’ll still have a record of the debt in Canada and an even worse interest balance and credit score if you return. Plus, moving to a new country doesn’t include a new, stellar credit score. You’d have to start from scratch again and take time to build new credit.
In some 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).
We hate to break it to you, but credit card debt won’t disappear if you run away to Maui. So what’s the solution?
What Can I Do About My Credit Card Debt?
Whether you have three months or three years of unpaid credit card payments, deciding to address it can feel intimidating. We’re here to help you tackle your debt with as much ease as possible. Here are some next steps you can take:
Reach out to Your Creditors
Step one is informing your creditors of your situation. Make a pot of tea and put on a Netflix series to occupy yourself during the long hold time. It’ll pass. Once you reach a representative, tell them about your missed payments and ask them for advice.
While they might not be sympathetic enough to forgive the interest, they will want to find a solution where they get paid. This might look like a repayment plan that works with your budget and spares your credit score further damage.
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 or credit counsellor about a debt consolidation loan. With good credit, your bank may offer you favourable terms on the loan, which will help you pay off debt faster and save money on interest in the long run.
A word of caution: a debt consolidation loan will clear your credit card balance. But that doesn’t mean you should look at your paid-off credit card as an opportunity to spend more money. If you fall into that trap, you’ll end up further in debt.
Our advice? Don’t use your credit card until you’ve paid off your debt consolidation loan in full.
Use a Personal Line of Credit
Paying your credit card with a personal line of credit still involves paying interest, but nowhere near as high as you would on a credit card. A personal line of credit differs from a debt consolidation loan because the interest rate isn’t factored in until you use the funds available.
Still, you must be vigilant and avoid using your newly paid-off credit card to get you into more debt.
Not only would interest accumulate via the line of credit, but you’d also have to keep up with monthly debt payments for your credit cards.
Furthermore, the revolving nature of a line of credit might cause a false sense of security and temptation to spend. Consider revamping your budget strategy or talking to a financial advisor for tips to avoid this.
Choose a Debt Consolidation Program (DCP)
Debt consolidation programs (DCPs) are a great alternative to debt consolidation loans or lines of credit—especially if you have a low credit score that makes qualifying for a loan or additional credit difficult. But what’s the difference between a debt consolidation loan and program?
A debt consolidation program isn’t new money like a loan is. Here, the program is carried out with the existing creditors. They’ll recover the principal, minus the agency’s share. It’s likely you won’t have to pay some of 100% of the interest originally charged. It’s also important to note that DCPs might cause more damage to your credit score at the onset. Plus, you’ll need to get rid of your credit cards once you enroll in a DCP.
But one of the main benefits of choosing a DCP is 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.
Call Credit Canada for Help with Credit Card Debt
The takeaway here is that missed credit card payments never turn out well if left unaddressed for too long. If too much time passes and action feels intimidating, you still have support. Our certified credit counsellors specialize in budget support, debt consolidation, bankruptcy, and general consultation to help you eliminate debt and start enjoying your life again. If you’re struggling with credit card debt, you need confidential support and non-judgemental professionals — two qualities Credit Canada’s certified credit counsellors channel in our services. Call us today!