Debt is a serious problem for many, particularly unsecured credit card debt. If you missed a credit card payment, you should be aware of the consequences. Unfortunately, while credit cards can be a useful financial tool, they can land you in a mountain of debt. And once you’re under that mountain, it can be extremely hard to hike back up.
That being said, if you’re starting to, or will soon default on your credit card payments, it’s important to be aware of the consequences that follow.
What Happens If You Missed A Credit Card Payment For A Month?
Consequences to missing one month of payment will typically depend on the terms of your credit card agreement, as well your creditor. Typically, your credit card agreement will outline the penalties and interest rates applicable on late payments.
Generally, missing one month won’t call for a harsh penalty, but will have an effect on your credit score. Some creditors may opt to remind you of the payment with a digital or written notice. However, some may report the late payment to the credit bureaus. Either way, a continued missed or late payment on your credit card may affect your interest rate, which will ultimately lower your credit score.
Missed A Credit Card Payment: Late Fees & Interest Rate
Usually, if your creditor doesn’t receive two minimum payments by the payment due date within 12 successive months, it may result in an increase on your annual interest rates. This applies to any unsecured lines of credit and credit cards. Accordingly, your monthly payments will likely increase. What your starting rate is depends on the terms and agreements signed at the time of opening the accounts with your creditor.
Missed A Credit Card Payment: Credit Bureau Notified
Some of the worst damage caused by defaulted payments will actually be to your credit report and credit score. Not all credit card companies will immediately report a single missed payment to Canada’s two major credit bureaus, Equifax and TransUnion, especially if it’s paid within 30 days. Once you’ve stopped making credit card payments for an extended period of time, your credit rating will drop. On your credit report, letters are assigned to each type of debt you have. Credit card debt is labelled with an “R”, which stands for “revolving”. If your payments come in 31-59 days late, your rating will change to an R-2. On top of all this, a notice of delinquency will be put on your report, where it will stay for 6-7 years, and your credit score will suffer for it.
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What Happens If You Continue To Miss Your Credit Card Payment?
Missing your credit card payments has lasting consequences, so paying the minimum amount due is better than skipping out on a payment. Missing a payment often results in your credit score taking a hit, making it harder for you to apply for credit products later on. In some cases, your creditors may freeze your card until it’s fully paid off. If you miss payments long enough, creditors may turn your account over to a collections agency.
Collection Process
Once you’ve missed a number of credit card payments, creditors will begin contacting you. If they believe it’s unlikely that they’ll receive the payments, your account will be sent to collections. This could be an internal department or assigned to a third-party collections agency. Once your debt is taken over by a collection agency, they will attempt to resolve your unpaid debts. Alternatively, creditors may take legal action and file a lawsuit to obtain a judgement. With this, creditors may file for a garnishment order, or place a lien against your property as ways to repay your debt. Collection agencies may also take you to court on behalf of your creditors.
Credit Card Frozen
Similarly, if creditors opt to obtain a judgement against you in court, they may use it to freeze your credit card. This means you will be unable to use the card to make purchases, and can only make payments toward what is already on it.
Legal Action
As discussed, creditors, or collection agencies on their behalf, may take you to court. They can obtain a judgement and file for various repayment actions. However, there are limits to how long creditors or collection agencies are able to wait before taking legal action. This means any threat of legal action once enough time has passed cannot be acted upon. The limit depends on the province and starts from when you made your last payment toward the debt, or when the debt was acknowledged:
According to the Federal Government of Canada, debt generally cannot be pursued after 6 years. Based on which province you live in, the statute of limitations will vary, typically ranging anywhere from 2 to 6 years.
| British Columbia | 2 years |
| Alberta | 2 years |
| Saskatchewan | 2 years |
| Manitoba | 6 years |
| Ontario | 2 years |
| Quebec | 3 years |
| New Brunswick | 2 years |
| Newfoundland and Labrador | 2 years |
| Nova Scotia | 2 years |
| Prince Edward Island | 6 years |
| North Western Territories | 6 years |
| Nunavut | 6 years |
| Yukon | 6 years |
Wage Garnishment
If your creditor or the collections agency obtained a wage garnishment order, they are allowed to garnish your wages up to a specified amount each month. You can keep the amount necessary to pay your basic expenses. A garnishment order can be applied to total earning from your job, your tax return, CPP and EI contributions:
- If you do not have dependents, you are allowed to keep $800 net each month, to a maximum of $2400. Creditors can take one-half of the amount between $800 to $2400, and 100% of the amount above the maximum.
- If you have dependents, the $800 minimum and $2400 maximum increase by $200 per dependent.
Note: This does not apply to child support or alimony debt.
Additionally, there is no limit if creditors are garnishing your bank account. This means if your wages are deposited directly into your bank account, it’s classified as a bank deposit and not as wages. You must apply for an order from the courts to be treated as wages, as noted above.
Difficulty Getting Other Credit Products and Credit Cards
Low credit scores have a major impact on your ability to get any new credit products and financing. If you want to apply for another credit card or other sources of unsecured debt, creditors will see you as someone with a high risk of defaulting. For this reason, creditors are unlikely to grant you credit products given your history. This includes not only any new cards, but even auto loans or mortgages.
What Does It Mean To “Default” On A Credit Card?
The term “default” means that an individual has failed to fulfil an obligation to repay their debt. In this case, we’re talking about the terms dictated by the contractual agreement for your particular credit card. You, as the cardholder, have to make at least the minimum monthly payment, by the due date without exception to avoid a penalty. Once you’ve fulfilled that obligation, you can continue on using that credit card until your next bill rolls around.
If you fail to make that minimum payment, even by a single day, you have technically failed to meet the terms of your contract and are therefore defaulting. While some lenders like credit card companies may allow a few missed payments before labelling your account as “defaulted”.
What Happens When Your Credit Card Account is in Collections?
When your unpaid account reaches the 180-day (6-months) point, most credit card companies will put your account in a “charge-off” status, meaning you’ll no longer have access to credit. After your account has been charged-off, a record of that will also show up on your credit report, where it will remain for 7 years.
By that time, the card company will likely have sold your debt to a collection agency, who will pick things up where they left off. Since that collections agency now owns your debt, they will legally be allowed to pursue you for it.
Can A Debt Collector Contact Me If I Missed A Credit Card Payment?
Debt collectors are allowed to pursue you for any unpaid debt, to a certain limit. Typically they will try to contact you by phone or through letters to your home and at times, your place of work. These actions can be considered borderline harassment, so it’s important to understand your rights and know that there are people you can contact to prevent a debt collector from abusive collection tactics. If you’re being intimidated by a debt collector, you can contact the Financial Consumer Agency of Canada.
Can A Debt Collector Sue Me If I Missed A Credit Card Payment?
Depending on just how much you owe debt collectors may threaten to sue you or pursue other forms of legal action. Although this isn’t a common occurrence as creditors don’t always take default cases to court, because it’s expensive and time-consuming. However, it may happen under certain circumstances. In fact, most Canadian creditors won’t take legal action against overdue accounts that amount to less than $5,000. But, if your creditor or the collection agency decides that the likelihood of recovering part of their loss from you is high, they may pursue a court settlement regardless of the amount of your debt. If they sue you and win, then you may be subject to actions like wage garnishment.
How To Manage Credit Card Debt
Using a credit card is easy, but managing accompanying debt can be challenging. However, there are methods to keep your debt in check and maintain your credit score.
Find Payment Strategy
Following the right payment strategy can help curb potentially late or missed payments. For starters, paying more than the minimum payment helps you save on the interest banks charge on the remaining amount. Prioritizing your smallest debts or debts with the highest interest can ease you into paying off the rest. Finally, using a program or website to automate your payments can help you track and stay on track with your payments.
Debt Consolidation
If you have multiple debts with different accounts to manage, you may want to consider applying for a debt consolidation loan. This strategy allows you to combine your debt into one. Letting you make one central payment a month towards your debt as opposed to managing several bills and accounts.
For instance, consider applying for a 0% balance transfer credit card. Some of these cards offer a longer period of 0% interest. Transferring your existing credit card debt to that card helps you save more on monthly payments. Another option is taking out a fixed-rate debt consolidation loan to help repay your debts. This is a personal loan that often has a lower interest rate than most credit cards, which similarly helps you save more on payments.
Have You Missed A Credit Card Payment?
Though it may be tempting to miss out on your credit card payments, remember that avoiding your debt will only cause more financial hardship and stress down the line. The best thing you can do for yourself is to access your options and tackle your credit card debt. If you need to, contact your credit card company or seek out the help of licensed professionals like an insolvency trustee or credit counsellor. For more information, take a look at our blog spot.
