How to Avoid Being Charged-Off?

What is Charge-off?

When an account is delinquent for a certain period, normally for 180 days, the issuer usually writes off the outstanding balance of the cardholders, considering it as uncollectible and declares the account charged off. It is a loss on the part of the issuers. However, they are compelled to do so as they cannot invest more time in collecting the unpaid debt from the cardholders.

Does a Charged off account free you from debt?

A charged off status on your account does not free you from your debt. Instead, it affects your credit in the worst possible way. You are more liable to pay towards your debt than before. If you fail this time, the issuer may file lawsuit against you. Moreover, the issuers will sell your charged off accounts to a third party agency, namely Collections agencies who own the debts as an asset to their company. They will try hard to collect the debts from you. Sometimes, they adopt unscrupulous and intimidating methods to collect debts from debtors.

How does a charged off status affect your credit?

Your account will be reported to the Credit Bureaus as charged off and this will remain on your credit report for seven years from the date you went delinquent. Even after seven years when the lenders are to offer you credit, they will pull your credit records and see the negative remarks on your credit report. This will hamper your chance to get a loan or a good credit card with better interest rate. Your credit score will drop significantly and you would be required to improve it before you get any better credit favor. Your payment history takes 35% of your credit report. Hence, any negative mark there is seriously taken by the lenders understanding the fact that you were once not able to repay your debt.

How to avoid being charged off?

The simplest way to keep your accounts going is to make at least the required minimum payments each month. Make sure you are not late on any payments. If you are late for consecutive six months, your account may be charged off. Try to use your credit within the assigned limit. If you are late on payment in one month, make a larger payment in the next month. This may not stop your account going past due, however, it will lessen your burden of debt and hence, prevent you from going past due again.

What to do if the account is already charged off?

If your account goes charged off, do not panic. You still have ways to get away from this. The only way for you to circumvent this is to wait for seven years or to cut a deal with your creditors. It is always advisable to deal with your creditors rather than the collections agencies. Contact your banks and try to strike a lump-sum settlement with them. Do not commit to payment until you are very sure that you can actually make the payment. You can also ask for a monthly payment agreement in which you may need to make a minimum payment to get the charged off status removed from your credit report. Always ensure all the negotiations are done in black and white. If they agree to your settlement proposal, they should mark your account “paid as agreed”. This should reflect on your credit report too.

To sum up, you should not panic, if your account is charged off. However, it must be avoided. It will for sure affect your credit but will not end your world. So, be prudent while using your credit and try to make your payments on time. You will never have to live a life under the fear of having accounts charged off. A charge-off is bad but losing hope on this is worse.