A credit card is a widely used financial tool in Canada. But if you significantly rely on your credit card to make big or small purchases, it’s important to remember that the expenses do add up. While the allure of credit cards lies in their convenience and purchasing power, neglecting to pay your bill can set off a chain reaction of financial repercussions that may significantly impact your life.

According to a 2023 Equifax Consumer Quarterly Credit Trends Report, there has been a rise in non-mortgage debt due to credit cards between 2022 and 2023, with total card balances reaching $113.4 billion in the third quarter of 2023. The report also found a trend of missed payments on all credit products in Canada.

The key to avoiding unpaid credit card debt consequences in Canada and maintaining a good credit score starts with learning what happens if you don’t pay your credit card. Use the following guide to understand what happens when you miss credit card payments and tips on staying away from debt.

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

Neglecting to pay your credit card bill can trigger a cascade of adverse consequences. So, if you’ve ever asked what happens if I don’t pay my credit card, this breakdown of what you might expect may come in handy.

Interest Rate Increases

Credit card issuers often respond when you miss a payment by hiking up your interest rates. This means that you owe more due to the missed payment and will also accrue interest at a higher rate on your outstanding balance. Over time, this can lead to a significant increase in the total amount you owe.

To avoid unexpected interest rate increases, consider opting for short-term loans that are easier to pay off. For instance, FlexMoney understands the financial hurdles people face, so we offer loans designed for Canadians who need quick access to cash. However, it’s essential that you create an effective repayment plan to make prompt payments and avoid additional costs.

Late Payment Fees

In addition to interest rate hikes, credit card companies typically impose late payment fees when you miss a deadline. These fees can range from moderate to substantial and are added directly to your outstanding balance, compounding your debt further.

Credit Score Damage

Late payments and delinquent accounts can tarnish your credit history, making it harder to qualify for loans, mortgages, or even rent a home in the future. A lower credit score can also result in higher interest rates and less favourable terms on any credit you can obtain.

We recommend checking your credit report regularly to determine how late payments may affect your score. This may motivate you to pay off your credit card debt on time and prevent you from dealing with significant financial consequences of unpaid debt.

Collection Agency Involvement

One of the most common unpaid credit card debt consequences in Canada involves collection agency involvement. If your debt remains unpaid for an extended period, your account may be sent to a collection agency. These agencies specialize in debt recovery and may employ aggressive tactics to secure payment, including incessant phone calls, letters, and even legal action.

Legal Consequences

While you can’t be jailed for failing to pay your credit card debt in Canada, creditors may take legal action against you to recover the outstanding amount. This could result in wage garnishment, asset seizure, or other financial penalties, further exacerbating your financial woes.

What If You Miss One or Two Credit Card Payments?

Missing one or two credit card payments can be a red flag to lenders but is generally manageable if you take prompt action to rectify the situation. If you missed a credit card payment by 1 day in Canada, contact your credit card issuer as soon as possible to explain the situation and explore options such as setting up a payment plan or negotiating a lower interest rate.

Taking proactive steps can help mitigate the impact on your credit score and prevent further financial strain, ensuring you’re in a better position to explore short term loans in Canada if needed.

What Happens When You Miss Have Unpaid Credit Card Debt for Several Years?

Neglecting to pay your credit card for extended periods may raise the question: what happens if I don’t pay my credit card for 5 years or longer? If you allow credit card debt to go unpaid for an extended period, the consequences become more severe. After several months of non-payment, your account may be charged off by the credit card company, indicating that they consider the debt unlikely to be repaid.

At this point, your account may be sold to a collection agency, which will aggressively pursue repayment through phone calls, letters, and potentially legal action. Unpaid debt can haunt your credit report for up to seven years, reducing your loan approval chances and making it challenging to get funds when needed.

How Long Can Creditors Chase You for Credit Card Debt?

The statute of limitations for debts is a rule set by each province. It stops collection agencies from suing someone for a debt after a specific time. This time differs in each province, usually between two to six years.

For instance, the statute of limitations in Ontario lasts two years from the most recent acknowledgment, whereas in Newfoundland, it’s six years.

Understanding these legal parameters is vital for borrowers seeking financial assistance from popular loans online and credit card companies. By being aware of your rights and obligations regarding different types of debt, you can make informed decisions to manage your financial responsibilities effectively.

The Importance of Paying Your Credit Card Debt

Paying your credit card debt on time is crucial for maintaining your financial health and credibility. A history of missed payments and unpaid debt can lead to financial distress, strained relationships with creditors, and limited access to essential financial services.

A good credit score opens doors to favourable interest rates, higher credit limits, and better terms on loans and mortgages. It also opens doors to a wide range of financial opportunities, including access to credit building loans, which can be instrumental in improving your credit score over time. These loans are designed to help individuals establish or rebuild their credit profiles by making timely payments, demonstrating responsible financial behaviour, and gradually improving their creditworthiness.

Tips to Stay Away from Credit Card Debt

Avoiding credit card debt requires discipline, foresight, and sound financial management. Here are some tips to help you stay on track.

Create a Budget

Track your income and expenses to ensure that you’re living within your means and allocating funds for essential expenses, savings, and debt repayment.

Use Credit Cards Responsibly

Limit your credit card usage to necessary purchases and avoid carrying balances from month to month. Pay your bill in full and on time to avoid accruing interest and late fees.

You can also opt for alternatives to credit scores and use a line of credit when you need financial support. A vital benefit of a line of credit is its flexibility, allowing borrowers to access funds as needed and only pay interest on the amount used.

Build an Emergency Fund

Set aside money in a savings account to cover unexpected expenses and emergencies, reducing the need to rely on credit cards for financial relief.

If your emergency fund doesn’t cover specific expenses, consider opting for online personal loans in Canada to avoid applying for new credit cards that typically involve a lengthier process. FlexMoney online personal loans include a simple application process and approval decision in minutes, allowing quick access to cash without filling out lengthy paperwork.

Seek Financial Advice

If you’re struggling with debt or financial management, consider seeking guidance from a certified financial planner or credit counsellor who can provide personalized advice and assistance.

FAQ About Missed Credit Card Payments

Many borrowers are concerned about the consequences of unpaid credit card debt in Canada. Here are some frequently asked questions to help you better understand what you may have to deal with if you miss credit card payments.

What happens to unpaid credit card debt after 7 years in Canada?

Unpaid credit card debt can remain on your credit report for up to seven years from the date of the last activity. After this period, the debt should fall off your credit report, although creditors may still attempt to collect the debt through other means.

Although getting loans with bad credit is possible during this time, it’s important to be cautious about what your credit report reveals about your financial circumstances by performing regular credit checks.

What happens if you stop paying your credit cards in Canada?

If you stop paying your credit cards in Canada, you risk damaging your credit score, incurring late fees and interest charges, and facing aggressive debt collection efforts. Persistent non-payment can send your account to collections, potentially resulting in legal action and further financial penalties.

Can you go to jail for not paying credit cards in Canada?

In Canada, you cannot be jailed for failing to pay your credit card debt. However, creditors may take legal action against you to recover the outstanding debt, which could result in wage garnishment, asset seizure, or other financial penalties.