By Randolph Taylor on March 14, 2024
Estimated reading time: 9 minutes

What happens if I don’t pay my credit card bills?

By Randolph Taylor on March 14, 2024
Estimated reading time: 9 minutes

Credit card companies may respond differently to missed payments. In this article, we’ll discuss the consequences and explore ways to manage your debt.

A Canadian holding a credit card and wondering what will happen if they don't pay their credit card.

Image by freepik

When dealing with unpaid credit card debt, you know you shouldn’t ignore incoming bills—even if you’re struggling to keep up with the rising cost of living. But what can you do?

If you’re struggling to make your minimum credit card payments, you’re not alone. Unexpected emergencies can sometimes leave us short on funds to make the minimum payment on a credit card. According to Equifax Canada’s 2023 Market Pulse Consumer Credit Trends and Insights report, nearly 35% of Canadians carry balances on their credit cards from month to month. However, there are potential consequences for not paying your credit card bill on time. So here are the steps you can take to minimize the impact.

Note that credit card companies may respond differently to missed payments, ranging from a tersely worded letter to potential legal action, depending on your issuer and your situation. In this article, we’ll explore the implications and ways to manage your credit card debt.

What are the immediate consequences of not paying a credit card bill?

If you don’t pay your minimum credit card balance, there could be different outcomes depending on the type of credit card you carry and the credit card issuer. Missing a couple payments will usually result in a hit to your credit score, as well as penalty fees like late charges and potentially a higher interest rate. If you miss more than one payment, the credit card company may also close your card.

Review your credit card agreement to ensure you are aware of your obligations and any potential penalties. If you miss payments, the credit card company may do any or all three of the following, according to the Canadian government:

Revoke promotional interest rates.
Increase interest rates in general.
Cancel the credit card.

Will my credit score be impacted if I don’t pay?

Payment history is the biggest factor in calculating your credit score, so a late or missed payment can definitely impact it. Your credit score indicates creditworthiness for lenders, meaning it influences the loans you may qualify for, the interest rate you’ll pay, what you can buy on credit, and maybe even where you work and where you live.

Typically, one missed payment won’t end up on your credit report for at least 30 days after the payment due date. If you make the payment before that point, you might incur penalty fees, but your credit score likely won’t suffer. However, if you don’t pay your credit card for longer than that, your credit will take a hit and hinder your ability to qualify for certain financial services in the future.

The best credit cards for bad credit READ NOW

Interest increases and penalty fees on missed card payments

Depending on the terms and conditions of your credit card, you may have to pay a late fee if you miss a payment. Penalty fees can depend on your balance and what’s outlined in the credit card agreement.

In addition, you might face a penalty annual percentage rate (APR) if you miss payments by at least 60 days, resulting in a higher interest rate being applied for a period of time. And that can grow your debt even higher. These terms differ depending on the credit card issuer.

When a credit card company sends your account to collections

The credit card company will usually send multiple warnings and requests to repay your credit card balance if it remains outstanding for several months. If you have not paid consecutively in the last six months, the credit card company is likely to send your account to collections. Below is a timeline for when a credit card company will use a collections agency:

If you are 60 days behind on payments, the card will be temporarily suspended. It will only be reactivated once you catch up with the minimum balance due.
If you are 120 days behind on payments, the card will be permanently cancelled.
Between 121 and 180 days, the debt stays with the credit card company. At this point, if you are able to pay off the credit card balance, the account will be closed. If not, the account gets transferred to collections.

The best way to avoid having your account sent to collections is to talk with your credit card company about your financial situation as soon as you miss a payment and ask for their advice. While they might not be understanding enough to waive the interest, they will want to find a solution that ensures they receive payment. This could involve setting up a repayment plan that suits your budget and prevents further damage to your credit score.

Dealing with legal action

If the credit card bill goes unpaid for longer than a few months and you owe several thousands of dollars, your credit card company may try to take you to court to recover the debt.

If you’re sued for credit card debt and you lose in court, the creditor will be granted a judgment order. This gives it or the collections agency the ability to pursue harsher means to collect the debt, such as garnishing wages, freezing bank accounts and/or putting a lien against any assets.

Provincial laws limit how long a creditor can wait to take legal action. In Ontario, for example, a person can’t be taken to court after two years of the debtor acknowledging the debt. This is known as the statute of limitations. However, any longer than that, the debt does not go away—it just means a lawsuit is off the table.

A debt collector can continue to call to collect on debt beyond the two years, even one that has been removed from your credit report. The debt does not go away until it is paid, or you file a consumer proposal or file for bankruptcy. However, both insolvency options should only be considered as a last resort since they will substantially impact your credit rating.

What can I do about my credit card debt?

If you’ve fallen behind on credit card payments, you have options. If you are having issues paying your credit card bill, here are some steps you can take to help tackle your debt:

Make the minimum payment—or more if you can

Be sure to pay your credit card’s minimum payment on time every month. A minimum payment is the lowest amount of money you can pay to keep your credit card in good standing. The minimum payment is either a fixed amount (often $10) or a percentage of the balance (typically around 3%)—whichever is greater. For example, 3% of a credit card balance of $3,000 would be a $90 minimum payment.

Making the minimum payment won’t go very far in reducing your credit card debt since you’ll be accruing interest, but it will keep your account in good standing and let you avoid late fees or penalties. So, pay more than the minimum payment if you can.

Call your credit card company

The first step is to tell your credit card provider what’s going on with your financial situation. Explain why you’ve missed or are going to miss payments and ask for their guidance. They might not forgive the interest, but they’ll likely want to figure out a way for you to pay. This could mean setting up a payment plan that fits your budget and prevents further negative impact on your credit score.

Use a personal line of credit

Paying off your credit card using a personal line of credit means you’ll still pay interest, but it’s usually much lower than what you’d pay on the credit card itself. Unlike a debt consolidation loan, the interest on a personal line of credit kicks in only when you use the money available.

However, it’s important to stay vigilant and avoid using your newly paid-off credit card to get into more debt. A line of credit may provide a false sense of financial security and make it tempting to overspend. To avoid this, consider adjusting your budget strategy or seeking advice from a professional.

Get a debt consolidation loan

If you have multiple sources of debt but still have a relatively good credit score, you might want to ask your bank or financial institution about a debt consolidation loan. With good credit, you might receive a loan with good terms. This can help you pay off what you owe faster and save money on interest in the long run.

While a debt consolidation loan will pay your credit card balance, that doesn’t mean you should look at your $0 balance as an opportunity to use more credit. If you fall into that trap, you’ll end up further in debt.

Consider a debt consolidation program

Debt consolidation programs (DCPs) are an alternative to debt consolidation loans where several forms of unsecured debts—including credit card debt, payday loans and outstanding bills—are combined into a single monthly payment. The arrangement stops or significantly reduces the interest charged on the debts, and is negotiated by your creditors and a non-profit credit counselling agency, like Credit Canada.

One of the main benefits of a DCP is the convenience of making a single monthly payment, making it easier to manage your debt and see progress. Most DCPs can be completed in less than four years.

However, DCPs do come with restrictions. Part of choosing a DCP means not acquiring new credit while you are on the program, such as getting new credit cards or lines of credit. In addition, DCPs can initially harm your credit score. When you enter a DCP, you’ll be given an R7 credit rating, which will show up on your report as “making regular payments through a special arrangement to settle your debts.” The R7 rating will be purged from your credit reports two years after completing the program.

It pays to know! Get FREE MoneySense financial tips, news & advice in your inbox. Subscribe now

Get professional advice for debt management

Missed credit card payments never turn out well if left unaddressed for too long—but you can still get support. As professionally certified credit counsellors with Credit Canada, we at Credit Canada can help you understand credit and address debt. If you need support, contact us today to book a free credit-building counselling session.

This article was created by a MoneySense content partner.

This is an unpaid article that contains useful and relevant information. It was written by a content partner based on its expertise and edited by MoneySense.

About Randolph Taylor

Randolph Taylor is a certified Credit Counsellor with Credit Canada, the country’s longest-standing non-profit credit counselling agency. He has over 20 years of experience helping Canadians get out of debt.