What Happens If I Can’t Pay Off My Credit Card?

Life is expensive and debt is stressful. If you’ve ever felt overwhelmed by your credit card balance, you’re not alone. As Canada’s first and longest-standing credit counselling agency, we’ve counselled thousands of Canadians like yourself who have trouble making payments. 

You might wonder: what happens when I don’t pay my credit card balance? What if I can’t even make my minimum payments? 

Credit Canada CEO Bruce Sellery chatted with one of our certified credit counsellors, Doris Asiediu, about interest, credit scores, collections, and debt relief programs in this Moolala: Money Made Simple podcast interview. 

We’ll recap some of the episode’s highlights and arm you with the information you need to deal with missed credit card payments, help you understand the consequences, and create a plan to overcome a credit card balance you struggle to pay off. 

Minimum payments versus the entire credit card balance

That minimum payment looks a lot less intimidating than the entire balance. Luckily, you can still maintain a solid credit score as long as you make that minimum payment. 

“It is not an all-or-nothing thing—I think is a worthy reminder,” says Bruce. “You are much, much better off if you just make [at least] the minimum payment (vs skipping it completely).”

Doris concurs and also shares that your best course of action is to pay off your entire credit card balance each month. This helps you avoid additional charges in interest. But if you can’t manage to pay the whole balance? 

“You’re better off just making [at least] the minimum payment so your credit doesn’t take a hit.”

Now, what happens if you have trouble making the minimum payment, or simply forget to pay it? 

What happens when you don’t make your minimum payments

You might miss the credit card payment date for many reasons. Maybe you just don’t have enough funds after paying for groceries, rent, and emergency expenses. Or, you simply forgot, and paid the balance a few days late. 

Let’s say you just miss one month’s payment. Then what?

“That first payment, it won’t be so significant,” says Doris. ”But it will still be reported. It’s hard to say how many points [your credit score] will go [down], but it won’t be that significant.” 

Still, it’s always best to be proactive. You might automate your payments via online banking, or reach out to your lender in advance to see if they could offer a few more days on the payment deadline.

Doris also reminds us that technically, even if you just miss ONE payment, a creditor is legally permitted to go to a collections agency. However, most of her clients don’t experience collections calls until they’ve missed three or four months of missed payments. 

“Generally, around the third month, they’ll start within the creditor’s internal collections to work out an agreement,” explains Doris. “If that doesn’t work, they’ll go to an external collections agency—third or fourth month.”

What kind of agreement can a creditor offer within their internal collections department? It really depends on the creditor and client; however, you might be able to agree on a set period of no interest charges or even a reduced payment plan.

What happens after months of missing payments?

If you can’t come to an agreement for repayment with your creditor’s internal collections department, they’ll likely go to a third-party collection agency. Doris says this usually happens to her clients after four months of non-payment. 

Unfortunately, months of missed payments aren’t uncommon. Our credit counsellors talk to many clients who struggle with this reality. The biggest burden at first glance? The debt collection calls come in at all hours of the day. But Doris says by this point you may also be vulnerable to legal action:

“They could put a lien on your house — if you’re working, they can get a court order to allow your wages to be garnished. After a year or so if debts are not taken care of, you’re reaching the point where legal action could happen.”

Can you go to jail for ignoring collection calls? That doesn’t happen — but the financial repercussions that follow can make your life almost equally as difficult. For more information about collections agencies, read our article on how to stop collections calls for good. 

5 steps to take if you can’t make your credit card payments

Doris and the team of credit counsellors at Credit Canada have supported millions of Canadians having difficulty paying off credit cards with confidential, informed credit counselling to create a new path toward a debt-free life. 

She mentions overwhelming interest and multiple payment obligations as obstacles and stressors. In the episode, Bruce and Doris discuss solutions to both the obstacles and consequences of not paying off your credit card.

1. Automate your payments

“Set up automated payments, a reminder on your phone — anything that will give you a reminder to help you stay on top of your game and not miss a payment,” says Doris.

You can also play around with budgeting apps and online banking resources to help you stay on top of payment deadlines. 

2. Prioritize living expenses and high-interest debt

Should debt repayment come before groceries? No, though you might shop sales to minimize your expenses in the interim. Still, Doris reminds us that life necessities always come before debt:

“The basic necessities should always come first, i.e., housing, utilities—those are the primary needs you’ll have to be able to meet and should be taken care of first.”

You should also assess which debts are costing you the most money each month. If you have a high credit card balance, that interest could tally up pretty quickly. Focus on paying those first and explore the avalanche and snowball debt repayment strategies for inspiration. 

Bruce mentions student loan creditors could be more forgiving and open to an adjusted payment plan. But that doesn’t mean you can ignore those debts, either:

“Every debt is important—it’s all about how the individual is handling the situation. Student loans, if they’re not paid, the government can take different actions, too. For example, you might not get your tax refund,” explains Doris.

The best way to avoid legal action? Start with a conversation. 

3. Talk to your creditors

While credit card companies aren’t likely to forgive your debt, you might buy yourself a bit more time before they report a late payment if you let them know what your situation is. 

Some creditors might offer hardship programs where they’ll work with you to figure out a more affordable repayment plan. This is especially common with student loan debt. 

But if talking to your creditors doesn’t work?

4. Consider debt consolidation

Debt consolidation is an agreement where a credit agency acts on your behalf to consolidate your unsecured debts (lines of credit, credit cards, personal loans) from multiple creditors into one monthly payment. 

One method is a debt consolidation program, or “DCP” through a non-profit credit counselling agency like Credit Canada.

“When we combine these debts under one umbrella, the agency’s role is to disburse that to the creditor on behalf of the client until the debt is paid off. It can last three or four, up to five years,” says Doris. 

The main benefit of a DCP? It’s a manageable, affordable monthly payment and you’ll stop collections calls. Plus, interest rates are reduced or eliminated depending on each situation.

5. Talk to a credit counsellor

All the helpful information Doris shared in Credit Canada’s Moolala podcast is accessible to you, whenever you’d like. Our certified credit counsellors provide non-judgmental, confidential, and absolutely free credit counselling services to Canadians struggling with any level of debt. 

When you lay everything out with a professional, you can get a better handle on what your situation is and how to address it. We’ll work with you to assess your debt and create a plan to address it that fits your income and budgetary capacity. All you need to do is take the first step and contact our team.

Tackle credit card debt with Credit Canada!

Bottom line? Credit card debt isn’t always an easy debt to pay off. Thousands of Canadians increase their credit card debt each year, but that debt doesn’t have to rule your life. 

That’s why Credit Canada exists — to help you get out of debt and back into life. Ready to overcome your credit card debt for good? Talk to a credit counsellor today!