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What Happens If You Stop Paying Your Credit Card in Canada?

By Julie Jaggernath

Life can sometimes get hard, and if you have debt, you might wonder what happens if you stop paying your credit card bills. Whether it’s because you don’t earn enough money for all of your expenses or have obligations that just don’t seem to fit into your budget, credit cards can be the lifeline that gets us through a tough time – only to turn into an anchor that drags us down when it comes time to pay the bills.

When you don’t pay your credit cards, the process varies a bit depending on the companies you have your credit cards with, but generally speaking, they will try to recover what you owe as soon as they notice you falling behind. It will start with some financial penalties and consequences for your credit rating. Then collection agents will contact you for payment. And finally, you could face legal consequences if you leave your credit card unpaid.

Here are answers to some of the questions you might have:

Overwhelmed by unpaid credit cards, bills

If I Can’t Pay My Credit Card, What Will Happen?

When you can’t pay your credit card for one month, the consequences are relatively minor, compared to what happens if you can’t pay your credit card for 3 months, 3 years, or even 5 years. Depending on your cardholder agreement, missing your payment for a month will likely mean an increase to your interest rate, a ding to your credit rating, and a larger payment the following month.

Interest Rate Increases

If your credit card interest rate, or APR (Annual Percentage Rate), goes up, it will typically go up by 5%. Some companies stipulate that it takes a full year of making your payments on time to take away the 5% penalty. Others remove the additional 5% more quickly. A higher interest rate makes it that much harder to keep up to date with your payments. Check the terms and conditions for your credit cards to see what applies to you.

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Impact to Credit Rating

When you miss making a payment for even one full billing cycle, the credit bureau companies are notified of your late payment. As part of your credit report, they keep track of how often your payments are 30, 60, or 90 days late. Late payments are a negative strike against your credit score and can impact your ability to take on new credit when the time comes to start borrowing again.

Higher Payment Amounts

Many credit cards now require cardholders to make their minimum payment each month, in addition to any interest or past due amounts that are owing. For example, if you are used to making a minimum payment of $50 but fall a month behind, you will need to pay the current $50 that is due, the previous month’s $50 that is overdue, plus the interest that is owing on the past due amount. This means that your minimum credit card payment is more than double to what it usually is.

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Can My Credit Card Company Take Money from My Bank Account?

A question you might not have thought to ask is if your credit card company can take money from your bank account to pay your bill. If your credit card, or other credit product, for that matter, is at the same financial institution where you also have your bank account, then the answer is almost always yes. It is called the right of offset and can come as quite the unexpected surprise.

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What Is the ‘Right of Offset’ and How Does It Affect Me?

An offset happens when your lender and bank account provider are one and the same. If you fall behind on a credit product and you have money in your bank account, any money that is in your account or comes into it (e.g. pay cheque, alimony) can be paid against your outstanding debt. Other money going into your account, except when your source of income is strictly assistance from the government, can also be offset against your debt.

Offsets happen between financial institutions too, but they require a court order. You may have also experienced a government offset, for example, if you owe money on your income taxes. Then your G/HST credits are held back and paid towards that debt instead of being deposited into your bank account.

The problem with offsets is that they can happen at any time, without notice, and to any account you have, even if it’s joint with your kids or an uninvolved third party (e.g. senior parent). If you think you might face an offset soon, open a bank account at a financial institution where you don’t owe any money. Redirect all of your money into this new account so that you’re not left short on essentials, like rent or groceries, while you come up with a plan to deal with your debts.

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What Happens When You Have Unpaid Credit Card Debt?

When a few months goes by and your credit cards have been left unpaid, your situation becomes more urgent. Your balance owing increases quickly, you can’t earn and redeem points or use loyalty privileges, and your creditors become uneasy about your ability to pay them back what you owe. Imagine that it’s a friend you owe money to. While a creditor doesn’t need their $100 back like your friend might, you did agree to repay what you owe.

When debt is left outstanding, the first collection activity comes from the company you owe the money to. You will get reminder notices on your statements to please pay what is owed, followed by letters to specifically point out what you owe, and then phone calls to advise that it’s urgent that you make a payment.

Subsequent actions include blocking the credit card so that you can make payments, but you can’t use it to make any purchases. This includes blocking pre-authorized monthly charges to your card that could be for essential bill payments or obligations. Once you’re all caught up, some cards can be unblocked, while others can’t be. When a company won’t unblock their card, even when you’ve caught up on what is owed, that is their way of suggesting that you try to apply for credit somewhere else.

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What Can I Do to Stop Worrying About Credit Card Debt and Debt Collectors?

It can be hard to stop worrying about credit card debt if you aren’t sure what to do about it. By the time you’ve fallen about 6 months behind, your account will have been assigned to a third-party collection agency, and you will no longer be dealing directly with the company you owe the money to. At this point you will get a lot of notices, phone calls, and face more aggressive collection tactics. The debt collector could try to strike a deal with you or serve you with a notice of claim because they’ve chosen to proceed with legal action before the statute of limitation expires.

What many people fail to realize is that when your account is labelled “past due,” the full amount is due all at once and you lose the ability to make monthly payments, unless you’re able to strike up a new agreement with the debt collector assigned to your case. But be wary of entering into an agreement just to get them off your back. You need to be able to follow through with any terms you agree to. If you don’t, it will look even worse for you than it did before because you’ve now defaulted on a second payment arrangement.

How to Get Credit Card Debt Relief in Canada

When you reach this stage of debt collection, one way or another you will need to resolve your situation. This is when, if you haven’t reached out to us yet, you should get our help. There are options to deal with your credit card debt that you might not have heard of before. There are even solutions that allow you to stop paying your credit cards legally.

How Can I Stay Away from My Credit Card Debt?

When the bills get overwhelming, you might want to try and stay away from your credit card debts. Some people even think about leaving the country to avoid them. However, a better strategy when you can’t pay your credit card debt is to come up with a plan to get your finances back on track. And we can help you. Sometimes this means paying back all of what you owe but with much less or even zero interest. Other times it means settling your credit card debts for less than what you owe. Or it might mean looking at legal ways to not pay back some or all of what you owe. No matter which option is best for you, you need information and guidance to make an informed decision and protect your financial future.

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Get Help If You Have Had to Stop Paying Your Credit Card Debt

If you have had to stop paying your credit card debt and bills, your situation can quickly spiral out of control. It is important that you take action sooner than later to find a solution for your situation, or someone else will resolve it for you. This could mean being sued for what you owe, your pay cheques could be garnished, your assets could potentially be seized, and your situation could become even more difficult. Even applying for new credit at a reasonable interest rate, like for a consolidation loan or a second mortgage, will be almost impossible because of your bad credit rating. So don’t let your finances get to this point, or if they have, stop them from getting even worse. When you’ve got debt, you’ve got us; we’re available to help as soon as you reach out to us.

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