What does it mean when a credit card balance gets charged off?

Answer 1

I'll start by explaining what a charge-off is NOT. Because the term includes the word "charge," many people mistakenly think it has to do with cancellation of the account by the creditor. In other words, you can't "charge" anything on your credit card anymore. But it's not the same thing at all, and most banks will revoke charging privileges around 2-3 months before the deadline we're talking about here.

What banks and bill collectors call a "charge-off" is the point at which the creditor writes off the account balance as a "bad debt." It usually happens after six months of non-payment. After that, they no longer count it on their books as an asset. You still owe the money, of course. And they will certainly make continued attempts to collect it from you. But the creditor has been forced by the rules of accounting to zero out the debt on their financial ledgers. For causing this loss, they will punish you by placing a derogatory mark on your credit report. A "charge-off" is a serious negative mark, to be sure, but it is not the financial ruination that debt collectors would like to have you believe it is.

Should charge-offs be avoided if possible? Certainly. Does the prospect of a charge-off mean you should panic if you have no way to pay the bill? No! Is it the end of the world if the account has already charged off? No! Too often, bill collectors make a charge-off sound so bad, and they apply so much pressure, that people cave in and make payment commitments they cannot keep. Collectors usually demand payment via post-dated checks, and this frequently leads to bounced checks and even worse financial problems. Most of us are brainwashed by the banks and media on the subject of credit. Sure, good credit is important. But committing to payments you really can't afford just to preserve your credit is like watering the lawn while your house is burning down.

Here are a few simple rules to follow when trying to avoid a charge-off that hasn't happened yet:

* Don’t be intimidated or threatened by pre-charge-off collection tactics. Keep a cool head and don't take it personally when collectors try to get under your skin.

* Call your creditor to find out the minimum payment necessary to avoid the charge-off, and subsequent payments to keep the account current going forward. Don't commit to this payment (or series of payments) unless you're sure you can follow through.

* Negotiate a lump-sum settlement at 50% or less if you have the resources, or a workout plan for monthly payments that you can live with.

* Do not allow bill collectors to talk you into using post-dated checks, or providing your checking account details over the telephone. Instead, make payments via cashier's check or money order.

* Do not make payments based on a verbal arrangement. Get the deal in writing and signed by a creditor representative who has authority to approve the workout plan.

What should you do if you simply don't have the money to rescue the account from charge-off, or if the account has already been charged off by the creditor?

* Take a deep breath and relax; the sky won't fall on your head just because you had a charge-off.

* Realize that you still have an opportunity to resolve the matter by dealing with the original creditor or the collection agency assigned to the account.

* Negotiate a lump-sum settlement with the creditor or collection agency. Again, aim for 50% or less, and ask for the charge-off to be deleted from your credit report as a condition of the settlement. (Most creditors will not agree to this, but it's worth asking anyway. Do be sure that they will update your credit report to show that the matter has been resolved and the account has been satisfied.)

* If you can't work out a deal with the collection agency assigned to your account, then wait until it goes to another agency! Eventually, it will either be assigned or sold to an outfit that you can deal with to get the matter cleared up.

To sum up, a charge-off is not the end of the world. It should certainly be avoided if possible, but not at the risk of making things worse by committing to payments you're not sure you can keep up with. Just remember that the creditor doesn't want to see a charge-off any more than you do, so use that knowledge to your advantage in working out a mutually acceptable arrangement. Get everything in writing, don't disclose your checking account details, and follow up to make sure the creditor reports the matter correctly on your credit report. You'll find that it's easier than you think to resolve a charge-off situation before it happens, or clean it up if it's already taken place.

Answer 2

You do have to pay the collection agency because basically the credit card company has washed their hands of you and the debt agency now controls the record of whether or not you are making your payments. The credit card won't always tell the collection agency if you made a payment so to keep things accurate, pay the agency. If the collection agency becomes abusive, it is illegal. They can only call you for payments, not make threatening comments like "Wel'll ruin your credit if you don't pay us right now!!" Always ask for a supervisor and inform them that you will report them to the better business bureau for harassment. I told them they could only contact me by mail after I was driven to tears three times and had to climb up at least 2 supervisor levels. I also told them that they were ONLY to talk to my husband since I could not take the verbal harassment anymore. The agents make money by getting people to pay faster and in larger amounts. Do NOT let them bully you, remember that they are on commission basically. They cannot make up a different credit score than what you already have on record unless you break the payment agreement. The agency that called me turned out to have abuse lawsuits against them in 4 other states before I found out. That's when I threatened them with legal action. Your credit score is indeed taking a hit, but if you keep it clean for 7 years it will drop off. Also, after making payments, you can ask that they change your score. Be sure to get a copy and read it over to see if you need to dispute anything. Or just want to dispute something.

Answer 3

Charged off is an accounting term. When an account is active and performing it is listed as a receivable. When it isn't paying it is charged off to bad debt meaning it is removed from being a receivable on the books and placed as a bad debt on the books. The company gains tax advantages by doing this. Normally this occurs at 150 to 180 days past due.

Answer 4

It means the credit card company has written it off as a loss and has more than likely sold it off to a collection agency. The collection agency will then pursue the debt.

Answer 5

It means you are probably going to get sued. You need to take action.