Macco Law Group, LLP

What is a credit card charge off and how does it affect you?

What is a credit card charge off and how does it affect you?

Long Island residents facing substantial credit card debt may wish that someday it could just be wiped away altogether. And, should they face a credit card “charge off” they may think their problems are over. However, a credit card charge off could have numerous repercussions on a person’s credit.

In a credit card charge off, an individual’s debt is removed from the creditor’s balance sheet. For example, a credit card company may seek past due payments from the debtor for a certain amount of time, after which they will charge off the debt. However, this doesn’t mean that the debtor is off the hook for the debt; they still must repay it. Instead, the creditor will enlist a collections agency to collect on the debt however they can, including by calling the debtor and writing letters. In some cases, the collections agency will purchase the debt from the creditor, meaning the debtor now has to pay the agency, not the creditor.

Unfortunately, a credit card charge off can significantly impact one’s credit score. First of all, by the time it is sent to collections, the debtor accrued months-worth of late payments on the debt. In fact, since 35 percent of one’s credit score is made up of a debtor’s payment history, this alone can have a major impact on the debtor’s credit score. However, if the debtor’s debt is sold to collections, it will show up on one’s credit report as a new debt, meaning the late payments start right back up, and the negative impact on one’s credit score continues to grow.

As you can see, a credit card charge off can do more harm than good. So, how can you avoid one? If you find you cannot pay a bill, you may want to contact the creditor to see if you can enter into a payment plan. If that is not possible and your debt is indeed charged off, you may still want to do whatever it takes to pay off what you owe to protect your credit history. In the end, while a credit card charge off seems like a dream come true, it actually comes with a whole host of problems. Therefore, if you are struggling under debt that you cannot repay, you may want to seek help to determine if you have any options, including the possibility of filing for bankruptcy.

Source: Wise Bread, “What Happens When Your Credit Card Debt Is Charged Off?,” Jason Steele, Aug. 30, 2016