Credit card debt can be stressful, especially when you’re struggling to make ends meet. In these moments, it’s understandable that you might want to rely on your credit card to cover your immediate expenses. However, the burden of paying for these purchases can add additional stress over time.
So, what happens when you can’t keep up with your payments? What steps can creditors take to recover their money? More importantly, what can you do to get debt and collection agencies off your back? We will answer all these questions through this guide.
Are you looking for debt solutions in Canada? We are here to help!
Immediate consequences of missing credit card payments
The more payments you miss and the longer you wait to pay off your debt, the worse the situation becomes. You’ll also face some immediate consequences after you start missing payments, including:
1. High interest rates
If you make late payments, Your credit score will suffer, and you will face higher rates For new accounts or loans. Many institutions will also raise your credit card rates after a late payment (it usually takes two late payments per year to trigger a rate increase).
For example, with the Scotiabank Visa Infinite card, your interest rate may increase from 24.99% to 27.99% On purchases after two late payments within one year. With the various credit cards offered by CIBC, interest rates may rise to… 25.99%.
Short-term effects on your credit score
If you don’t pay your credit card, the card issuer will report the non-payment to the credit bureaus, hurting your credit score.
Credit Canada credit counselor Mike Bergeron says that while one late payment will have relatively little impact on your score, a history of late or missed payments will remain on your report for six years and hurt your character as a borrower.
Collection process and debt collection procedures
The situation will eventually escalate if you don’t pay your credit card bill for several months. Here’s what you can expect:
Debt collection procedures
Your creditors may sell the debts or outsource them to debt collection agencies. These entities must follow certain practices, including:
-
Communicate with you through calls and written notices
-
Negotiating payment plans
-
Report unpaid debts to credit bureaus
The agency may add fees to the balance or threaten legal action if you don’t pay.
Legal procedures
Creditors can file a lawsuit against you. If the court rules in their favor, your wages could be garnished and funds seized from your bank accounts. They can also place a lien on your property.
What can I do about my credit card debt?
Whether you have three months or three years of unpaid credit card payments, making the decision to address the matter can be scary. But you’re not alone in this – we’re here to support you. Here are some next steps you can take:
Communicate with your creditors
The first step is to inform your creditors of your situation. Once you reach a representative, tell them about your missed payments and ask for advice.
Although they may not forgive the accrued interest, they will want to find a solution that works for both of you. This may include a payment plan that fits your budget and prevents further damage to your credit score.
“Being proactive, open, and honest will yield the best results,” Bergeron says. “Most credit card issuers want to help if they can.”
Ready to overcome your debt challenges? Our credit counseling service provides free personal support to help you take control of your finances. never.
Consider getting a debt consolidation loan
If you have a lot of unsecured debt but still have a relatively good credit score, ask your bank or credit counselor about a debt consolidation loan. With good credit, your bank may offer you favorable 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 settle your credit card balances, but it’s important to avoid using these cards for new purchases, as this will increase your debt.
Our advice? Don’t use your credit cards at all until you’ve paid off your debt consolidation loan in full.
Use a personal line of credit
Paying your credit card using a personal line of credit still involves paying interest, but it’s usually nowhere near the level you’d need to pay with a credit card. A personal line of credit differs from a debt consolidation loan because the required minimum payment covers interest only. You must choose to pay more than the minimum payment to actually pay off the balance on the credit line.
Like a debt consolidation loan, avoid using newly paid off credit cards to avoid falling back into debt. Not only will interest accrue across the credit line if you don’t pay off the balance, but you’ll also have to keep up with extra monthly payments on your credit cards.
Furthermore, the revolving nature of a line of credit may create a false sense of security and the temptation to spend. Consider revamping your budgeting strategy or talking to a credit counselor for tips on avoiding this.
Choose a Debt Consolidation Program (DCP)
Debt consolidation programs (DCPs) are a good alternative to debt consolidation loans or lines of credit — especially if your credit score is low, making it difficult to qualify for a loan or additional credit. But what is the difference between a debt consolidation loan and a debt consolidation program?
A debt consolidation program is not new money like a loan. Here, the program is implemented with existing creditors. They will recover the capital minus the agency’s share. You probably won’t have to pay back some or all of the interest originally charged. It’s also important to note that DCPs may cause more damage to your credit score initially. Additionally, you’ll need to give up your credit cards once you sign up for DCP.
However, one of the main benefits of choosing a DCP is the ease of paying off your debt in one affordable monthly payment. This makes it easier to track your debt payments and allows you to see the light at the end of the proverbial tunnel. Most DCPs can be completed in less than four years.
Are you drowning in multiple credit card debt? Our debt consolidation software can help you consolidate them into one manageable payment. He learns more.
Legal rights and protections for debtors in Canada
You have specific legal rights and protections against aggressive collection tactics. Collection agencies must adhere to strict guidelines, which include limiting the frequency of contact and respecting your privacy.
the Consumer Financial Agency of Canada It is an excellent resource and can help you learn more about your rights. Seek professional legal guidance if you need assistance exercising and enforcing your rights as a consumer.
How Credit Card Bank of Canada can help with credit card debt
As mentioned above, missing credit card payments can result in debt collection and legal action, which can further stress your financial situation. If taking action seems intimidating, Credit Canada can help. Our certified credit counselors specialize in budget support, debt consolidation, and general counseling to help you get out of debt and get back to life. If you are struggling with credit card debt, our confidential, non-judgmental approach enables you to overcome these difficult circumstances.
Contact us or call 1(800)267-2272 to speak to one of our advisors today.
Frequently asked questions from our customers
-
What happens if you don’t pay your credit card for a month?
If you don’t make your credit card payment after a full month, you’ll likely face interest charges and an impact on your credit score. The exact penalties depend on your balance and your credit card agreement. For example, making the minimum payment in just one month ensures your credit score won’t be tarnished, but you’ll still pay interest. If you don’t make at least the minimum payment, you will face interest and a discount on your credit score.
We recommend that you review your credit card agreement to ensure that you are aware of your obligations and any potential penalties. the Canadian government Notes that credit card companies may take the following action if payments are missed:
-
Eliminate promotional interest rates
-
Increasing interest rates in general
-
Cancel credit card
Option #3 likely won’t happen after just one month because credit card companies make money when you don’t pay the principal right away through accrued interest. However, we recommend that you make more than the minimum payment each month to avoid further interest costs.
However, the high cost of living combined with financial stress may cause us to miss payments. If this is the case, you will likely hear from your creditor. Fortunately, your creditor may be willing to work with you before taking any further action.
Bottom line? A month is not the end of the world when it comes to credit cards as long as you correct it before it escalates into 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 will become more serious. That one month late payment on your credit score will become a much bigger problem if you have several months of missing payment history. Additionally, your interest will compound and compound your debt even further.
Creditors usually send multiple warnings and requests to repay your balance if it goes unpaid for several months. If you don’t make arrangements with your creditor to pay off the balance, your account may be sent to collections. Credit card debt collection takes two forms. The first is the creditor’s internal debt collection branch. If that doesn’t work, they’ll move on to the second option: a third party Debt collectorsuch as a collection agency.
If you’ve ever received a collection call, you know how scary it can be. But the best way to avoid getting to this point with credit card debt is to talk to your credit card company right away. Capital One She recommends informing the company as soon as possible about your situation — and they’ll be more likely to work with you.
-
What happens if I don’t pay my credit card for five years?
If you’ve gone a few years without making any payments on your credit card, it’s likely that your account is already with a collection agency. In this case, your credit card company may try to take you to court to recover your balance.
The timing of a lawsuit depends on various factors, including how proactive the creditor or collection agency is. Some people are quick to file a lawsuit against someone, regardless of the balance owed.
Regional laws and acts also limit how long a creditor can wait to take legal action. For example, Ontario Limitations Act It states that a person cannot be taken to court if it has been more than two years since he or she repaid the debt or two years from the time the customer acknowledged the debt in writing. This is known as the statute of limitations. Meanwhile, Quebec allows up to three years, and other provinces (such as Manitoba, Prince Edward Island, Nova Scotia, and the territories) allow up to six years for legal action.
If you still have a credit card balance after the statute of limitations has expired in your county, your credit score will still take a hit, which will get you into trouble every time you apply for financial services. This looks like interest rates on mortgages, car loans, personal loans and other credit cards rising, or being declined altogether.
Create a budget that works for you. Use our free budget planner to get started on your path to financial stability. Get your budget template today.
-
What if I don’t pay my credit card and leave the country?
Most debt experts do not recommend getting out of debt and moving to a new country. You will still have a history of debt in Canada and a low credit score if you return. Additionally, when you move to a new country, you’ll have to start from scratch again and take time to build new credit.
-
Can I Go to Jail for Missing Credit Card Payments?
No, you will not go to jail for missing payments. However, if the court rules against you as part of a legal proceeding, the creditor will have additional powers to collect money owed to them, including property liens and wage garnishment.
