How to settle a charge-off

There are some terms out there that sound good, but are actually pretty bad. A charge-off is exactly that. When a creditor gives you a charge-off, you might think that the debt you have on your credit card has been eliminated. This couldn’t be farther from the truth.

A charge-off is actually a judgment call about your character by your creditor. He/she believes you will be unable to pay off the debt, and the creditor then declares a charge-off to the Internal Revenue System. A creditor can claim a charge-off of a defaulted payment that has existed for six months, and he/she has three months to report it to credit bureaus. A charge-off is considered a loss in the business world; therefore, a creditor will report one to receive a tax deduction.

You might think that a charge-off freezes your credit card, making you unable to use it again. This may be true, but in most cases it is only temporary. If you ever get a charge-off, you cannot make new purchases with your credit card. Your biggest issue now is paying back the debt.

That’s right. Even though your creditor thinks you can’t pay the debt back, you are still responsible for paying it back! Even if it is listed on your credit report as “written off as uncollectable,” it’s still a valid debt, and collectors will hassle you on the phone. A charge-off stays in place as long as the statute of limitations in your state allows. It also appears on your credit report, and it will stay there for seven years. Other than bankruptcy, a charge-off can be the most detrimental thing to your credit report.

If you are trying to get a new loan in the next seven years, you must do something in regards to your charge-off. Your creditor may sell the outstanding balance to a debt collector, but you must deal with the creditor to settle the debt. Tell the creditor you can pay a certain amount of the debt. If you can pay sooner, you will be more likely to get a settlement. Keep in mind that your creditor doesn’t think you are able to pay the debt; that’s why he/she reported the charge-off in the first place. You need to convince your creditor that you can pay a good portion of what you owe. If this sounds like tips to negotiate your debt, this is exactly what is happening if you’re trying to remove a charge-off from your credit report. So you’ll probably think you should get a printed copy of your payment plan, and you’d be right. A charge-off appearing as “paid” or “settled” is much less damaging to your ability to get future loans than “uncollectable.” If you can show future lenders that you are able to pay your debt, you will be able to get a future loan. If you are going to wait until the statute of limitations expires, good luck. If your creditor ever reports a charge-off, the best advice is to take action.

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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