credit card debt "charge-offs"

November 21st, 2008
  • Freddie used bad judgement when he was in college, and racked up some $8000 in credit card debt. Five years ago, all of his credit cards were canceled by the creditors because he was unable to make even the minimum monthly payments. Over the five years he has been hounded by collection agencies, so he moved and changed his phone numbers, but eventually they caught up with him and started calling him again. When some of the collection agencies offered to "charge off" the debts for significantly less than the actual amount of debt, he saved up and made the payments because it seemed like the quickest way out of this situation. Now Freddie has been contacted by a collection agency about his last remaining credit card debt, at a substantial amount of $5000. They have offered to "charge off" this debt for half the amount owed. Freddie has saved for six months to raise the $2500 to make this payment, but wants to make sure that doing so is the right move. He acquired a copy of his credit report from a reporting bureau, and noticed that all of the settled credit card debts are listed as "charged off". Freddie doesn't want to throw away $2500 if it's not going to actually do anything to improve his situation. Freddie doesn't make very much money, and it has been very difficult to save even the reduced amounts to make these payments. Paying off the full amount of the debt is beyond his means. Did Freddie make the right move with the other debts? Should Freddie "charge off" this one too, especially in light of the fact that there are multiple other debts "charged off"? Or would he be better off waiting until after 7 years, when the debts are removed from the credit report on their own? Does a charge-off "renew" the 7-year duration of the bad credit? If it is of any relevance, Freddie has had other debts which are paid in full (not "charged off" and not delinquent), namely several student loans and two different auto loans. Only the credit cards have gone to delinquency. Please help Freddie.


  • Erikprice and/or Freddie, You've certainly got yourself into a mess, and there are no easy answers about the best way to solve this. I'm going to try to outline what I know and point you in a direction so that you can find out more. First of all, I am not a lawyer and I have no professional training in credit counseling. I remind you that what I'm writing here should not be interpreted as legal advice. Given your situation, I would HIGHLY recommend that you seek out a professional credit counselor and/or an attorney to work with you on your situation. The people who are contacting you to repay your debt are professionals; their goal is to get as much money out of your pocket as possible, and they don't care what happens to you and your credit after you've given them money. You need an advocate to tell you exactly what language to use in writing and speaking to your collectors. Further down in this answer, I'm providing a reference to a non-profit organization which may be able to assist you. PLEASE DO YOURSELF A FAVOR AND CONTACT THEM OR SOMEBODY LIKE THEM. On another note, there are plenty of scams out there where people claim they can fix your credit for a low fee and without having to pay off your debts. Don't believe them. Many of these are illegal and won't actually help you. Now, on to the actual answer. The website "Your Credit Source" [ http://www.yourcreditsource.org/credit_tips/charge_offs.html ] has this to say about chargeoffs: "The term "charge-off" is used by accountants. It means that a certain consumer's debt must be written off because he or she will not likely pay...This doesn't mean that the creditor will not continue to pursue collection, on the contrary, most will...Charge-off accounts are reported to the credit bureau...This means that anyone who views the credit history of that consumer will likely regard the charge-off to mean that the consumer failed to meet their debts and that the account is considered uncollectable. This leads to a very nasty impression of a person's credit history." Also, "The horrible black mark of a charge-off cannot generally be removed and, unfortunately, charge-offs are the primary reason for being denied credit. Not only that but the consumer is still obligated to make payment for this account. Once paid-in-full, the account can be reported to the bureaus as a "paid profit and loss" account with a zero balance. The charge-off status even keeps the consumer from qualifying for a re-aging process (the act of bringing the account to current and forgiving past due payments - often done as part of a repayment plan) on the account. Also, before a consumer can purchase a home or refinance a current mortgage "charge-offs" often have to be paid-in-full. Charge-offs, like most other credit blemishes, are removed after seven years from the date the charge-off occurred. It's also possible to "settle-in-full" instead of paying-in-full. What this means is that you and your creditor reach an agreement in which a lump sum of less than the actual debt amount will be accepted as full payment but this does usually require a large amount of cash." In summary: A charge-off is NOT something which you want on your credit report! What you want is something called a settlement. I found a similar definition for "charge-off" and the phone number for "Budget and Credit Counseling" by using the search facility of Experian, a credit bureau. The website for the results of the search is [ http://www.experian.com/query.html?col=ckc&qt=charge+off&x=0&y=0 ]. "Consumer Credit Counseling Service A non-profit organization that assists consumers in dealing with their credit problems. Consumer Credit Counseling Service has offices throughout the United States that can be located by calling 1-800-388-CCCS (2227)." Calling this number, I spoke with Shirley in New York (her actual phone number is 212 675 5070) and was given the following information: * The company she works for is Budget and Credit Counseling. They are a non-profit with the goal of helping people improve their credit. They are willing to give small amounts of advice for free over the phone, but they normally charge $50 for more extensive counseling. They are not affiliated with any collection agencies or credit bureaus, which means that information you give them will be kept confidential from those hounding you. * A "charge-off" is NOT something you want on your credit report. You want a settlement. It is very unlikely that you will be able to get the credit card company to list the debt as "paid-in-full," but you may be able to get something better than "charge-off." * Whenever dealing with a creditor, GET EVERYTHING IN WRITING!!! If they say that they will list your account as "settled" for $2500, they must send you the offer in writing before you pay or you will have no way to prove to the credit bureau that you had an agreement with the collector! * The debt will drop off your credit bureau record 7 years after the last payment was due. Paying off the debt should not affect this date, though other factors may do so. * Even though the credit bureau will no longer report the debt after 7 years, this doesn't mean that you're no longer liable. The company may still come after you and demand payment or get a court to garnish your wages. Therefore, it's best to have some type of settlement with the details declared IN WRITING. I highly recommend that you call the 800-number listed above and ask these people what they can do for you. If you don't like this particular organization, there are many other non-profits that will try to help you in similar ways. From what you've written, I think you need advice from somebody who can assist you professionally. Finally, I'd like to advise you regarding Google's recommended pricing at [ https://answers.google.com/answers/pricing.html ]. " $2 - $5 Can be answered with a single link or a single piece of information. Sometimes, if a researcher is personally interested in the question's subject, they may provide a longer answer. Not appropriate for multipart questions." Search Strategy: I looked up "charge off" using Google, but the vast majority of answers were from companies who accept a fee and claim to fix your credit. I don't think that posting a link to this search would be helpful to the customer because there's a lot of bad information out there on this topic and many people who aren't afraid to scam people in need. I also checked Experian's (a credit bureau) web site for the phone number of a non-profit credit counselor and spoke with an individual by phone. I hope this information helps you. /ephraim


  • Here's one more useful link for you to refer to: [ http://www.bankrate.com/brm/news/debt/20021216a.asp?prodtype=advice ] Charge-off advice /ephraim


  • Erikprice, Thanks for your kind words and the tip. I sincerely hope that your situation will work out for the better. /ephraim


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