Q. What is the Definition of a Charge Off?
A. When credit card companies, stores, banks or other financial institutions that offer credit are filing their taxes and can prove that a consumer has not paid the amount they owe on their credit card debt, the company will typically ‘charge-off’ the account on their books as un-collectable. They are legally declaring it as a loss and can write it off their own taxes. This will lower the amount of tax they are assessed to pay the government on April 15th.
A charge off is not a good thing for you to have on as part of your credit history. Some consumers assume that since the debt has been declared a ‘charge-off’ that it is the same as a write off. Not for you. You are still responsible for paying the debt owed, plus late fees, penalties and interest. Additionally, the credit card will be canceled.
A lot of people who use credit cards think that once the debt is charged off they no longer owe it, that it magically disappears into thin air. Nothing could be further from the truth. Not only do you still owe the debt, but it remains on your credit report charge off as a black mark for 7 years.
Charge offs are very difficult to remove from your credit report, and the only way to do so is to challenge the debt. Some credit card companies will allow a negotiated or ‘settlement’ payment, which is a lesser amount to pay it off. It will also go to a collection agency if they have not been successful in obtaining the pay off from you.
But even if you pay the lesser amount, the charge off will still remain on your credit report. If the amount you owe has been sold to another collection agency, it may be repackaged as a debt with additional fees, penalties and interest, which only increases the total amount you owe. It doesn’t seem fair, but it is not illegal.
If you don’t have the money to pay off the debt, it’s an unfortunate situation you have no control of. Many good people have lost their jobs, ran into financial problems due to illness or as the result of a messy divorce. There are programs the federal government has put into place that can help you repair your credit, as well as other agencies who are experts in the restoration of your credit.
For example, I used Lexington Law to remove over $12,000 in questionable charged off debts from my credit report.
It is in your own best interest to avoid a charge off on your credit card at all costs. Your financial future depends on how you handle your credit, which can result in denial of future purchases such as a mortgage, car loan or line of credit.
If you are a college student or a young consumer, be very careful when applying for credit cards. Although legislation has recently been enacted to protect the consumer against predatory lenders, it is still your responsibility to be financially savvy and make smart decisions when it comes to your credit decisions. Read the fine print and research what kind of credit applications are right for you and your lifestyle.
