What Are the Consequences if You Don’t Pay Off Credit Card Debt?

If you’ve got a pile of credit card debt and are spending beyond your means, but are able to make your payments today, you could argue that you’ve got your debt under control. However, when you are stretched thin living in a paycheque to paycheque environment, it doesn’t take much for you to fall behind in your payments as expenses rise.

credit card debt not paying consequences

Have you stopped to consider what would actually happen if you didn’t pay your credit card debt? The consequences of not paying credit card debt?

“If you are accustomed to a lifestyle where you buy-now-and-pay-later as a matter of course, you may want to rethink your spending decisions before you are dealing with a dangerous amount of debt. Missing even a couple of payments on your credit cards can have long-term consequences that are not worth the instant gratification of being able to purchase on credit,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

If you get to the point where you can no longer afford your credit card debt, this is what you might be faced with.

Damage to your credit history

If you are only a few days late with your payment, there may not necessarily be consequences if you deal directly with the financial institution and explain your situation. However, if you are chronically late with your monthly payment, or cannot pay for a longer period of time, you can expect damage to your credit history. In order to be considered “on time”, generally your payments need to be made within 30 days of billing.

Your credit rating is assigned a numeric value based on your timely payments. An R1 rating pays on time, always, which is the ideal scenario. As you slip past that 30-day window, your rating falls downward from R2 (which is 31-60 days late) all the way through to R9 (which is written off debt, usually from bankruptcy).

“This matters a great deal because the bulk of your credit score is made up of your payment history and your credit rating. If your credit rating is less than perfect, you may not even qualify for credit going forward, depending on the circumstance. You can also expect to have to pay higher interest rates as a result,” says Schwartz.

Higher interest on late payments

While much of the focus on late payments is about having damaged credit, late payments can be very expensive too. When you take out a credit card, you are technically entering into a contract, where you agree to pay a set amount (usually a percentage of the overall balance) that includes principal and interest. Your credit card statement will lay out in detail how interest is charged and what your obligations are. You will also be made aware of any late charges or other costs that you incur as a result of defaulting on the payments.

It makes good sense to reduce your debt load before you push yourself into this financial corner.
If you are worried about your mounting credit card debt, we are here to help. Call one of our trained credit counsellors at 1-844-402-3073 or get started with our free online debt analysis today.

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