What happens if you can’t pay your credit card?

In summary:

• Failing to pay your credit card results in late fees and accumulated interest.
• Missed payments can damage your credit score and limit your access to financing.
• Over time, your account may be sent to a collection agency or become the subject of legal action.
• If your debts become unmanageable, a Licensed Insolvency Trustee can help you find a solution that fits your situation.

Being unable to pay your credit card can quickly affect your financial health. Our internal statistics demonstrate this and are supported by data from the Office of the Superintendent of Bankruptcy Canada: in 89% of insolvency cases, individuals carry credit card debt¹. The longer payments are overdue, the more the debt grows and the more serious the consequences become. Here’s what you can expect.

The short-term consequences of not paying your credit card

The short-term consequences of not paying your credit card

The first consequence is typically the application of late payment fees. These fees are added to the amount you already owe, increasing your outstanding balance. In addition to these fees, most credit cards charge an annual interest rate of approximately 19.99% to 20.99% on purchases, while cash advances may be subject to rates exceeding 22% to 23%, depending on the card issuer. For example, if you carry a balance of $2,000 on a credit card with a 19.99% interest rate, you’ll pay approximately $33 in interest each month. Over six months, that’s nearly $200 in interest alone, not including late fees or any new purchases.

Even if you make your payment a few days later, these fees generally still apply. As a result, repeated late payments can make it increasingly difficult to regain control of your budget.

On top of that, interest continues to accrue on the unpaid balance and on any new purchases until the entire balance has been paid off. This further increases the total amount you must repay.

Higher interest rates

In addition to late fees, many credit card issuers impose a higher interest rate when payments are repeatedly late. In other words, if you lose your promotional or preferred interest rate, you could end up paying significantly more interest on your outstanding balance.

For example, if you owe $5,000 on your credit card and your interest rate increases from 12% to 20%, your annual interest charges rise from approximately $600 to $1,000, an increase of nearly $400 in just one year, even before accounting for new purchases.

The result is that a larger portion of every payment goes toward interest instead of reducing your debt.

The medium-term impact on your credit report

When payments continue to be late over the medium term, typically beyond 30 days or after missing 1 or 2 minimum payments, the consequences extend beyond bank fees and begin affecting your credit report. Here’s how your credit can be impacted:

A lower credit score

A late payment does more than generate fees and interest. Once a payment is reported as overdue, it can begin affecting your credit report, moving your payment history from an R-1 rating to R-2, R-3, or worse, depending on the severity of the delinquency. Lenders use this information to assess your repayment habits and determine the level of risk involved in extending additional credit. The more frequent or prolonged your late payments are, the greater the impact on your credit score.

After approximately 30 days of non-payment, your credit report may be negatively affected. Financial institutions report your payment history to the credit bureaus, and negative information may remain on your credit report for six years.

As you can see, the more serious and frequent the missed payments, the more your credit score may decline. For example, someone with an excellent credit score (around 800) could lose dozens of points after a payment is reported as more than 30 days late. The exact decrease depends on the person’s overall credit profile, payment history, and number of missed payments.

A significant drop in your credit score can lead to several consequences, including:

• Difficulty qualifying for a loan
• Denial of a new credit card application
• Higher interest rates on future financing
• Difficulty renting a home in some cases
• A possible impact on certain job applications where a credit check is required

Rebuilding a strong credit score can then take several years.

The long-term impact on your finances and assets

If your debt remains unpaid for several months, particularly after 90 days, collection efforts generally become much more serious.

Collection agencies

Your creditor may transfer your account to a collection agency. You may begin receiving phone calls, emails, or letters demanding repayment of the debt. At this stage, your credit rating will generally be lowered to R-9, the worst possible rating.

Although these collection efforts can be stressful, collection agencies must comply with the laws governing debt collection. They cannot harass consumers or engage in abusive practices.

At this stage, it’s often advisable to consult an insolvency professional, such as the personal financial advisors at Jean Fortin & Associés, to review your available options before the situation worsens.

Legal action

If no agreement is reached, the creditor may choose to file a lawsuit to obtain a court judgment.

Depending on your circumstances, a judgment may allow the creditor to use legal remedies such as wage garnishment or the seizure of certain assets, subject to the exemptions available under your provincial legislation.

At that point, the financial consequences may become much greater than the original debt because they can also include legal fees and court costs.

Who is responsible for joint credit card debt?

When a credit card is jointly held, each cardholder is generally responsible for repaying the entire balance, not just their share of the purchases. This means that if one cardholder stops making payments, the creditor may seek full repayment from the other cardholder.

By contrast, when someone is merely an authorized user on a credit card account rather than a joint account holder, responsibility for repayment generally remains with the primary cardholder.

Since the terms vary depending on the financial institution and the credit card agreement, it’s important to review the conditions that apply to your specific situation.

Each financial institution has its own policies. Some do not hold one spouse responsible for purchases made by the other. Because these policies differ between institutions and may change over time, only your financial institution can confirm how your account is treated.

How can a Licensed Insolvency Trustee help if you can’t pay your credit card?

If you’re no longer able to make the minimum payments on your credit cards or your balances continue to grow, meeting with a Licensed Insolvency Trustee can help you regain control of your finances.

Assessing your financial situation

During your initial meeting with a Jean Fortin Licensed Insolvency Trustee, your income, expenses, debts, and assets will be reviewed to determine the solution that best fits your situation.

Presenting your available options

Depending on your circumstances, the trustee may recommend a budget restructuring plan, a consumer proposal, or, when appropriate, a bankruptcy.

Stopping collection actions

Filing a consumer proposal or bankruptcy generally results in a stay of proceedings, which legally stops most collection actions by creditors during the process.

Helping you make a fresh start

Your trustee will guide you through every step of the process to help you rebuild a more stable and sustainable financial future.

Being unable to pay your credit card can have serious consequences, but solutions are available. The sooner you take action, the more options you’ll have to minimize the impact on your financial situation. If your debts have become difficult to manage, booking an appointment with an insolvency specialist can help you evaluate your options and regain control of your finances.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee

¹: https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/statistics-and-research/canadian-consumer-debtor-profile-2024