Many collection letters will include the term “charge-off.”
Like credit reports, collection letters are full of terms that mean something other than what you might assume. Of all the odd terms found on collection letters, this one likely raises the most questions from clients in our debt resolution service.
So, what does “charge-off” mean on a collection letter?
Is it as bad as the collection letter makes it out to be?
Today we will dive into that and also consider different perspectives based on your unique goals.
What Prompts it, and When?
The only time an account will charge off is if payments are delinquent. Even if you are making partial payments, if it is below the minimum amount, the creditor may charge off the account.
A charge-off will generally occur after about 180 days of non-payment. There may be some variation based on the type of debt, as explained by the FDIC. It can sometimes happen as early as 120 days after the missing the first payment, but the 180-day mark is the normal timeframe for credit cards.
The Credit Bureau’s Perspective
Let’s start by looking at the way Experian defines it.
According to Experian, “Charge off” means that the credit grantor wrote your account off of their receivables as a loss, and it is closed to future charges. When an account displays a status of “charge off,” it means the account is closed to future use, although the debt is still owed.”
As you can see, this refers more to the creditor than the debtor.
Yes, a charge-off is considered a negative remark on a credit report. And, yes, it can affect the way the debt is collected. However, it more has to do with a creditor’s internal accounting.
Probably one of the most critical points their definition makes is that the debt is still owed.
The Collection Definition
Collection letters will often make statements such as “if you do not make arrangements to repay this debt, it may result in the account being charged-off ….”
They intend for this to sound scary.
It should come as no surprise that a collector will do whatever they legally can to collect on a past-due debt. Turning an accounting term into a scare tactic is just another example of how they tend to operate.
It can help to know that this is a normal part of the collection process.
That is worth repeating.
This is a normal part of the collection process.
In many cases, a charge-off can be helpful because the lender, or any third-party debt collector that may become involved may be more willing to make a deal to resolve the debt.
Further, among the most helpful benefits of a charge-off is that it prevents late fees from continuing to accrue on the account. It goes without saying that this can be incredibly helpful when you are trying to get out of debt.
Friend or Foe?
So, what is the real takeaway here?
Most people think of charge-offs in a very negative sense. Sure, it is a negative remark on a credit report. In all reality, though, it is more of a ‘matter-of-fact’ occurrence. By the time you have an account that reaches this point, it is probably no surprise that the debt is behind.
That is the real issue- the delinquency.
Making a single payment to prevent that charge off is just a band-aid. You’ll still have the same struggle to deal with next month or on another account.
Rather than viewing the reference to a charge-off as a call to take action on that particular account, use it as a jumping-off point to work on bettering your entire financial situation.
Rather than attempting to prevent (or, more likely, delay) a single account from charging off, you will be better off making a plan to resolve all of your debts.
Easier Said Than Done?
Dealing with trouble debt and credit is hard. But, you don’t have to go it alone. We will lend a few suggestions, but always consider your unique big-picture to determine the best steps to reach your goals.
If you’ve just recently fallen behind, consider working with a reputable non-profit credit counseling agency. They can help you create a budget and make a plan to repay all of your debts.
If you have been behind for a while or are in need of a solution that will be as affordable as possible, work with a debt settlement attorney at National Legal Center.
Our legal team is ready to work with you to create a comprehensive and affordable plan to resolve your debts.