Debt Consolidation: How to Understand Charge-offs
Consolidate Credit Card Debt to Avoid Charge-offs
One of the ways of avoiding charge-offs on your credit report is through debt consolidation. Debt consolidation makes it possible for you to consolidate all your credit card debt in one convenient amount at a lower interest rate so you can better manage your obligations. However, some people, who fall behind in their payments or do not consolidate the amounts owed on credit cards, will be liable for a debt or debts that have been charged off.
Charge-offs are Still Due and Payable
While “charged off” implies a debt has been cancelled, it means quite the opposite. Even though the creditor may have written off the amount as a bad debt on his books, he has usually turned over the obligation for collection to an attorney or third-party collection agency. Therefore, you still owe the balance and can be sued for the amount due. As a result, the charge-off is entered on your credit report as a negative item.
Paying off a Charge-off
If you pay off the obligation, then the entry on your credit report will be changed from a “charge-off” to either “charge-off paid” or “charge-off settled.” In order to remove a charge-off, you have to wait seven years, which is the length of time the entry stays on your report, or you can negotiate with the creditor to have the balance removed once you’ve paid off the amount. Typically, a credit card account will be charged off after six months (180 days) of delinquencies.
One of the Most Negative Entries to Appear on a Credit Report
According to Federal law, creditors must charge off installment loans after a delinquency period of 120 days while revolving charges are required to be charged off after 180 days of delinquency on an account. Probably, a charge-off is one of the most adverse entries that a lender can note on a credit report as it underscores a borrower’s inability to pay off a loan or credit card account and therefore makes obtaining any kind of financing all that much more difficult.
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