Unpaid credit card debt consequences – what are they?

Posted on 26 January 2022

Written by Samantha Galea

Receiving credit card bills you know you cannot afford is a tough scenario. It can also often escalate – credit card debt can rack up, and it may have a knock on effect on other payments you owe, like payday loans or utility bills. You are not alone – in fact, 41% of Canadians carry a credit balance from one month to the next. The easy option is burying your head in the sand, hoping it will disappear. Although in the short term this may seem like a good idea, it will most likely catch up with you. If not tackled, unpaid credit card debt consequences can include a poor credit report, and legal action like a wage garnishment, which in turn can lead to other issues. For this reason, you should tackle your credit card debt immediately – there is always a solution, no matter how much you owe. In this article, we explain unpaid credit card debt consequences, and how to tackle your credit card debt once and for all.

Unpaid credit card debt consequences – what are they?

In Canada, if you cannot pay off your credit card debt, there are a number of unpaid credit card debt consequences. When you take out credit, you agree to repay your credit card debts on time, and so creditors are expecting these payments each month you use your credit card. When they do not receive their payments, therefore, creditors will take any action they can to get their money, including engaging collection agencies. Ultimately, the longer you avoid the problem, the more likely it is to catch up with you. When you do not pay off your credit card bills or spend over your credit card limit, you are in default. Even if you are able to make the minimum payments on your credit cards, it is not repaying any of the principal of your debt, and so the reason behind why you cannot repay your debt needs exploring. Unpaid credit card debt consequences vary depending on your situation and lender. Below is a summary of the potential consequences:

  • Late payment fees on your credit card payments
  • Higher credit card interest rates
  • Negative impacts on your credit report
  • Calls from collection agencies
  • Credit card cancellation
  • Loss of credit card rewards
  • Write-off of your account from your credit report
  • Seizure of money from your bank account – many Canadian banks and financial institutions include a right of offset with their credit cards. This means they can seize money you have saved with them to go towards repaying your overdue debts, up to the full amount including interest and fees. They can do so without your permission or giving notice.
  • Lawsuits – although rare, if you are overdue on your credit card payments you could receive a Statement of Claim to warn you that you are being sued. Should you not act, your lender could be granted a Judgement Order to take on more aggressive ways of regaining their money like freezing your bank account, garnishing your wages, or worse.
  • Wage garnishment – with a Judgment Order, a creditor can seize money from your account via your bank or your employer, deducting your wages until your credit card debt is fully paid. Thankfully it is possible to stop a wage garnishment.

Each of these consequences comes over a period of time, and typically the longer your credit card debt remains, the worse your unpaid credit card consequences will become. Late credit card payments can remain on your credit report for up to six years – this will not necessarily be an issue if you do not need new credit, but if you do, it is problematic. Discover how you can rebuild your credit report.

What if you miss one or two credit card payments?

Should you miss one or two payments on your credit card, you will receive a letter from your creditor to remind you to make the payment you owe. This could well have an immediate impact on your credit report, but if you do not have any other payment issues and are able to make the payment, this will probably only have a temporary impact. If, however, you have missed several payments, your credit card company may well hand over your account to a debt collector. Every credit card company or lender has their own period for debt collection. Most collection agencies will only become involved when there are late payments three to six months after they were originally due. In this scenario, it is important to know what to say to collection agencies. Licensed Insolvency Trustees are able to file debt relief solutions that issue a stay of proceedings to legally prevent collection agencies from contacting you. The longer your credit card debt is not paid, the more aggressive the tactics creditors will use to regain their money. If you have substantial debt, a lawyer may also be engaged to collect.

How long can creditors collect on credit card debt?

A creditor may pursue credit card debt (and other unsecured debts) in Canada forever – however, there is a limited time period for which creditors can take legal action against the debt. This is known as a limitation period, during which creditors can file a claim with the court. In Canada, this is typically six years although some provinces have reduced it to two years. These provinces include Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Ontario, and Saskatchewan. Once this time period has expired, creditors may no longer take legal action like a wage garnishment, and anything they say to you is merely an empty threat. If you feel you are being harassed after the limitation period, you can file a complaint with the consumer protection office to stop the contact.

How does unpaid credit card debt impact your credit score?

Late payments on your credit card debt will have a negative impact on your credit score. This impact in turn is affected depending on how long this credit card debt goes unpaid. The two primary credit bureaus in Canada are Equifax and TransUnion. Although each credit bureau has slightly different ways of determining your credit score, your payment history contributes to around a third of your overall credit score. Payment history is impacted by the following:

  • The size of the credit card debt
  • How overdue the credit card payment is
  • How many late payments exist
  • Your current credit score

If your credit card debt is less than a month late, you will probably just be charged a late fee and interest but your credit score will likely remain unaffected. In this instance, you should pay it off as quickly as you can. If it is over a month late, your lender will likely make the credit bureaus aware – you will have a late payment note on your credit report, which could take up to six years to clear. If your late credit card debt payment creeps into being over four months late, any subsequent missed payments will be added to your report also. This will chip away at your credit score. Your creditor can close your account to stop you making continued purchases, and it may be labelled as a ‘charge off’, indicating bad debt. This could make it very difficult for you to take out credit in the future. You may also begin to receive collection calls. If numerous late payments are made on your credit card, the worse your credit score will remain. This will likely indicate your financial situation in general, as you may be struggling with other debts also. This is an urgent sign to speak to a Licensed Insolvency Trustee about your debt relief options, and to clear your credit card debt once and for all.

How to tackle unpaid credit card debt

If you want to deal with your credit card debt, there are various options for clearing it completely and beginning a fresh financial future. The most common ways of dealing with unpaid credit card debt consequences are as follows:

Debt settlement

In Canada, debt settlement typically refers to an informal arrangement or negotiation made with a creditor. You may do this yourself, or have a debt settlement company, a debt consultant or a Licensed Insolvency Trustee do this on your behalf for a fee. Often, it means offering creditors a lump sum or agreeing a repayment plan that is usually less than the overall amount, or at a reduced interest rate. This can be helpful in reducing unpaid credit card debt consequences by clearing your debt quicker. The only thing to be wary of with an informal debt settlement is that there is no guarantee you will gain debt relief, and you may well need to file another solution like a consumer proposal or bankruptcy regardless.

Consumer proposal

A consumer proposal is a legal debt settlement, regulated by the Canadian government’s Bankruptcy and Insolvency Act. As well as being an excellent bankruptcy alternative, it is a great way of clearing unpaid credit card debt consequences. Consumer proposals are able to reduce debts by up to 80%, putting in place a formal negotiation with your creditors with the assistance of a Licensed Insolvency Trustee. Once you have agreed on a monthly payment, any remaining debt is cleared. Other advantages of a consumer proposal include the ability to keep your assets, and a stay of proceedings to prevent creditors and collection agencies from contacting you.


In Canada, bankruptcy is the legal process of clearing any overwhelming debts you cannot afford to pay. Offering relief from both debt and unpaid credit card debt consequences, bankruptcy has many advantages. Any non-exempt assets are assigned to a Licensed Insolvency Trustee in exchange for clearance of debt. Bankruptcy offers a fresh financial start, and generates a stay of proceedings that prevents creditors from taking legal action against you or a wage garnishment. Despite many Canadians believing that bankruptcy will leave you with nothing, debtors are actually able to keep some essential items depending on which province you live in.

If you are concerned about unpaid credit card debt consequences, book a free consultation with Spergel today. Our debt experts across Canada will work with you to clear your credit card debt, and help you to deal with the unwanted consequences like collection agencies and wage garnishments. The sooner you reach out, the sooner we can help you solve your financial issues. You owe it to yourself.

Samantha Galea

Samantha Galea

Samantha Galea is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) who started working with Spergel as a summer student in 2010. With her socio-political background, Samantha is committed to breaking the stigma associated with bankruptcy so that individuals and families can properly understand all of their options on their path to debt freedom. She is also our resident expert on student debt and collection agencies, as well as the manager of our Brampton office. Outside of work, Samantha is an avid reader of historical non-fiction and world traveler.

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