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What is a charged off account on a credit card
Can you please tell me what a charge off account on a credit card means? I don’t have to pay this debt?
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2 Replies
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When a person fails to pay a credit card for multiple months (generally 4, but it varies), the card issuer may choose to “charge off” the debt. This means that they consider the debt to be uncollectible and take a tax write off. As far as the credit report, the card will no longer be shown with new lates (all previous lates stay), but will be marked charged off . They can still post a balance on this debt UNLESS they sell to a junk debt buyer (collection agency). At this point, they can still show the late payments and the charged off debt, but can no longer show a balance. This means that one account can actually be shown negatively twice…. once as a charge off and once as a collection.
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A charge-off account is not a good situation as it has gone unpaid for about 180 days or more, and the creditor loses hope of repaying it after hearing nothing from the debtor. This can be quite detrimental to your credit health. Here’s a bit more about what it entails.
What does a Charge-Off Mean?
Definition: Technically, and according to the term’s definition, a charge-off occurs when a creditor – for bookkeeping and tracking reasons – no longer recognizes a certain debt as collectible. Although the creditor has written it off accounting-wise, the charge-off does make the debt vanquish consequent-dominantly.
Reporting: Charge-offs are reported to credit bureaus, and this can negatively impact one’s credit report for about seven years or so.
Do You Have to Pay a Charge-Off Debt?
Still Owed: The money from the charge-off is still owed. However, charge-offs relieve any feelings of which accountability one owes them. When one doesn’t pay a charge-off, they have to pay the loan, yet the charge-off makes it more plausible to ignore the payment.
Collections: After a charge-off, an account could be forwarded to a collection agency attempting to collect the debt. At this point, you can expect calls and letters from collectors asking for your payments.
Legal Action: If you have defaulted on the debt for a long time, the creditor or collection agency might resort to legal means to recover the amount owed. This could lead to a court-ordered judgment being entered against you, which will add headaches to your finances and credit.
Consequences Following a Charge-Off
Credit Score‘s Loss: Having a charge-off impacts your ability to borrow more, so I wouldn’t be surprised if you found it difficult to get newer credit, loans, or more appealing borrowing interest rates.
Chance for Negotiations: In such scenarios, creditors may consider negotiating or settling for the whole amount owed to the collection agency. However, settling could also incur tax liabilities, so it should be handled carefully.
A charge-off does not relieve you from the responsibility of the debt. It merely shows that the creditor had decided to write off the account as a loss, but it is not the end of their right to recover the debt. If you find yourself in this situation, consider seeking the advice of a finance professional or a credit counselor to handle the debt about your credit better.