What does a charge-off on a credit card mean?
If you have a charge-off on your credit card, it doesn’t mean your creditor has set you free from your debt obligations. You are still liable to pay off the debt you owe. In such a case, you’ll have no option to make minimum monthly payments on your balance and you also won’t be able to buy things by using your credit cards.
Two types of credit card charge-off
You’ll see two types of charge-off on your credit report, one is paid charge-off while other is an unpaid charge-off.
If you pay the charged-off account in full, it’ll be considered as paid and if you don’t, it’ll get marked as unpaid on your credit reports.
Note: Some collection agencies want to convince you by saying that if you pay the charge-off in full, your credit score will fully recover. It is not true at all. But it’ll make a little positive effect on your credit score.
When does a credit card charge-off happen?
A credit card charge-off happens when you become delinquent on your loan payments and it has been overdue for more than six months; your creditor anticipates that you won’t be able to make the payments. The creditor then removes that owed value as a bad debt and this is known as “charged-off.”
This removal doesn’t mean you are getting rid of the debt fully but the creditor sells of your debt to a collection agency.
What happens when there is a credit card charge-off?
When your account gets charged-off, two things can happen. One is you’ll start receiving calls and letters from collection agencies aiming to receive debt amount from you. Another is your account will be considered as “charged-off” on your credit report.
How does a credit card charge-off affect your credit score?
A credit card charge-off can highly affect your credit score. A single charge-off can make your credit score drop by about 100 points and more.
How can you deal with charged off credit cards?
A charged-off credit card is nothing but a curse. So, now, you have to deal with the collection agency to remove the charge off from your credit reports.
Here are 2 simple ways to deal with charged off credit cards:
1. Negotiate with your collection agency:
Once your debt gets charged off and your creditor sells it off to a collection agency, take some essential steps to reduce the harm of your credit. Let’s follow the steps:
- Make sure it is correct – At first, make sure your credit card charge-off is accurate. When it is about credit report, mistakes can happen. And, for this reason, a charge-off can stay on your credit report even if you don’t have a delinquent account. Or, in another case, a charge-off can stay on your report for more than seven years. So, how can you overcome this situation? The only way you can take is to contact the creditor and the credit bureaus and dispute it to remove the charge-off from your credit reports.
- Make sure the entries are correct – Check to make sure that the charge off entry is correct. So, check the names, addresses, account numbers, open date, charge-off date, payment history, balance, etc. so that they are accurate. If there is the smallest error in the entries, you can dispute them with your creditors and credit bureaus to remove them or fix them. Make sure you keep documents of communication.
- Check the amount of debt – Now, you need to be sure that the amount in your charge off account is correct. It can happen that you have paid a certain amount of debt but it is not updated in your credit report. Or, the collection agency may have added on extra interest or fees but your report lists the same charge-off amount. Keep in mind, once your debt is sold, you have to pay to a single company. Therefore, contact the right creditor to be sure about the entries like what you owe, whom you owe to, and what you have paid.
2. Pay the charge-off to obtain “pay for deletion”:
Your creditors may not agree to remove the charge-off from your credit report. In such a case, there is no way but to pay it. But, it doesn’t mean you have to pay the full amount at a time because in most cases, it is not possible to pay the entire amount in one go.
Don’t step back when it is about repaying your debt and eliminating the charge-off from your credit report. Instead, call the collection agency to negotiate! If the creditor asks for $400 but you can only pay $100 in a month and the creditor approves it, go ahead. But if they disapprove, then have patience and negotiate properly.
If you can pay a significant amount but not the entire balance, creditors may agree to remove the charge-off from your credit cards. This is called “pay for deletion.” Here, you should also make sure that the collection agency you speak to removes the entry. Don’t forget to receive the agreement in writing before paying.
Here are some points you need to keep in mind before you pay the charge off:
- If your charge-off is an old one, don’t pay the debt in full but go for negotiation to pay less than what they’re demanding.
- Creditors can tell you that they can’t remove the charge-off legally. It is not true at all. Keep on negotiating until you reach a deal.
- Never forget to get the agreement in writing before you pay them.
- Last but not least, never give a debt collector your bank account details until you’re very sure about them.
Credit card is basically an open-ended account you can borrow from and repay as long as you can. And, it has higher chances to make you fall into bad debt. Still, there is a way to stay away from such bad debt and that is setting a limit on your credit spending.
How can you set a limit on your credit spending? Follow the ways:
- Avoid using multiple credit cards as sometimes it gets harder to maintain all at once.
- Pay the bills on time to avoid late payments.
- Whenever you get some cash in hand, put them toward paying off a credit card balance.
Now, it comes how can you get out of credit card debt! Here are the ways:
- You can opt for debt consolidation to consolidate all your bills into a single monthly payment. It’ll help you reduce your monthly payment and interest rate at the same time.
- You’ll find another way that is a debt settlement program where a debt settlement company will handle everything on behalf of you. They’ll negotiate with your creditors to reduce the outstanding amount as you feel comfortable to pay. The company will instruct you not to pay a single penny to your creditor but to pay the decided amount to the settlement company monthly. Your payments will be deposited into an escrow account which the settlement company will use to make a lump sum payment to your creditors and settle the debt.
- You can choose balance transfer credit cards which is a method of transferring balances of one or more credit cards to a new card that holds a 0% or very low interest. Here, you can save the entire interest if you pay the whole amount within the low introductory period.
Live freely but in a frugal way. It can help you to set a limit on your demands, and in turn, on your spending too. If your spending is in the limit, there are fewer chances to fall into the debt trap and encounter the problem of charged-off credit cards.
Be wise while using credit cards or handling debts…
Happy life ahead!!!