What does it mean when an account has been charged-off, and how do you pay a charged-off account? Whether you’re dealing with a credit card, car loan, or other type of account, having an account marked as “charged off” can be confusing and upsetting.
In short, a charged-off account is when your creditor marks the account as “probably not going to be repaid”. It often occurs after 6 months of missing payments but could happen sooner than that. In lending and finance, a charged-off account is an everyday occurrence. But for most people, there’s a first time when you learn what charged-off means and how to pay a charged-off account to resolve your debt and repair your credit score.
DebtBlue can help you tackle this challenging situation with a step-by-step guide on how to effectively address a charged-off account and pay the balance.
Here's what you need to know.
What Is a Charged-Off Account?
A charged off account is one that creditors have written off. They have essentially marked your account as unlikely to collect. This typically happens after 6 months (180 days) without a payment, but creditors can charge off an account even earlier. A charge-off is a negative mark on your credit report, but it doesn’t actually affect the status of your debt in any way.
- Your debt still exists
A common misconception is that a charged-off debt has been erased. This isn’t so. A charged-off debt must still be repaid, but the creditor doesn’t expect payments anymore and has sent a negative record to your credit report.
- Your credit score will drop
A charge-off on your record is a negative mark on your credit report. It can reduce your credit score and influence your ability to get loans or credit in the future.
- Your debt might be sold
Once a creditor has charged-off an account, they are more likely to send it to internal collections or sell it to a debt collection agency.
Why Should You Pay a Charged-Off Account?
Ultimately, a charge-off doesn’t change much for you, the borrower. It’s a mark on your record, lowers your credit score, and denotes an increased level of risk. But the account is still active.
That means if you want to be debt-free, then you’ll need to continue making plans to pay off the debt. You might even get your account back into good standing with rapid repayment to restore your payment schedule. And if not, you may be able to keep debt collectors and legal action at bay by paying the charged-off account. This way you can:
- Improve credit health: Reduce the negative impact on your credit score.
- Prevent legal action: Creditors may sue to recover the debt.
- Stress relief: Clear the way for financial recovery and peace of mind.
How to Pay Off a Charged-Off Account
The primary challenge of paying a charged-off account is knowing who and how to pay. How to pay a charged-off account depends on who currently controls it. You may be able to pay your original creditor, or you may need to deal with the debt collectors they sold your account to.
1. Confirm the Debt
First, verify your debt. Confirm that the debt is valid and that the balance is accurately listed. Check your credit report and account records to make sure the information matches. You can request validation by contacting your creditor or the collection agency to confirm details.
2. Understand Your Options
You have three options for paying a charged-off debt
- Pay the delinquent amount in full
- Set up a payment plan to repay the debt over time
- Work with a debt resolution company to resolve the debt for less than the total amount
3. Contact the Creditor, Credit Agency, or a Debt Resolution Company
Once you decide your path, you can choose who to contact. If your creditor still owns the debt, contact them directly and make arrangements for a repayment plan. If a debt collection agency owns the debt, be sure to verify before contacting them to learn the proper repayment routes.
Alternatively, you can contact a debt resolution company or certified debt specialists. They may be able to pull up a list of all the debts you owe and build a comprehensive plan for debt resolution that will help you achieve long-term financial freedom.
Get the Agreement in Writing
Whether you agree to pay in full, sign up for a payment plan, or negotiate debt resolution, be sure everything is documented and signed. Get copies of the signed agreement and confirm how the account will be reported (ideally, back in good standing) on your credit report before you make the first payment.
4. Make Payments
Once you have an agreed payment schedule, stick to it. Set up payment reminders or automated payments so that you pay the agreed amount on time ike clockwork. This is not just to resolve the debt but also for your protection. Use traceable methods like checks or electronic payments as proof of repayment and ensure your account balance updates accordingly.
5. Monitor Your Credit Report
Lastly, keep an eye on your credit report. Verify updates to the charged-off account status after you resume payments. If there are errors or if the account isn’t updated correctly, send in a dispute form to have the errors corrected. This will help your credit score recover as quickly as possible.
Here's what you need to know.
Tips for Success
Seeing a charge-off on your account can be distressing. However, a few best practices can help you get your finances back on track and stay in control of your account – even if your creditors pass the debt it to a collections agency.
- Avoid emotional decisions
Approach negotiations logically and with a plan that provides you the most financial benefit.
- Prioritize high-impact debts
Focus on charged-off accounts with significant balances, high interest, or legal risks.
- Seek professional help if needed
Debt counselors or financial advisors can guide you toward the best resolution decisions.
Knowing How to Pay a Charged-Off Account
If one of your accounts has been charged-off, don’t worry. You are still in control. The next steps are to confirm, negotiate, and build an agreement to pay the charged-off account to reduce your financial risk and restore the damage done to your credit score. Addressing your debts promptly and logically is the best way to build your long-term financial success.
Ready to tackle a charged-off account? Call certified debt specialists at DebtBlue if you want to consult on debt resolution strategies or you aren’t sure where to start.