Do You Have to Pay a Credit Card Charge-Off?

Doing calculations to pay off a charged credit card

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Like most well-intending credit card users who get a little behind, you probably didn't mean for your account to become charged off. You may not have even realized that charge-offs were a thing. Here's how it happens: after six months of consecutive missed payments, credit card issuers declare a delinquent account "charged-off." Unfortunately, by the time you're that far behind on your payments, it's far more difficult to get your account caught up again.

Before your account gets charged-off, your creditors were probably calling almost daily to set up a payment for your account.. But after charge-off, the calls stop almost suddenly. You breathe a sigh of relief, thinking they're finally off your back, but you're not off the hook.

What Exactly Is a Charge-Off?

Many consumers have the misconception that a charge-off means they no longer owe the balance. It's easy to make that mistake - "charge off" sounds a little like "write off" and in the world of taxes, a tax "write off" reduces the amount you owe. Not so in the world of credit cards and loans, at least not for you as the debtor.

When creditors charge off accounts, they're declaring it a loss and writing it off on their own accounting books. As a result, the creditor might owe the federal government a little less.

Do You Still Have to Pay a Charged-Off Credit Card?

Even though the credit card issuer has declared a loss on your account, you're still responsible for repaying the debt. The only exceptions are when you have the debt discharged in bankruptcy or the creditor cancels the debt for some reason. Barring either of those events, the creditor can (and probably will) still attempt to collect on the debt and might even assign or sell the debt to a third-party debt collector who will pick up the collection activities.

Charge-offs are more difficult to repay because the creditor, at that point, requires you to pay the balance in full. You no longer have the privilege of making minimum monthly payments over a period of time. If you talk to the creditor, you may be able to negotiate the balance due into two or three payments, but you won't get the convenience of paying over several months at your convenience like you could prior to the charge-off. You also lose your credit line and the ability to make any future payments on your account.

What If You Don't Pay?

If you choose not to pay the charge-off, it will continue to be listed as an outstanding debt on your credit report. You may have trouble getting approved for credit cards, loans, and other credit-based services (like an apartment) as long as the charge-off remains unpaid. The creditor or the assigned debt collector can pursue you for an unpaid charge-off indefinitely, including calling, sending letters, and updating your credit report. As long as the debt is within your state's statute of limitations timeframe, you can even be sued for the debt.

Impact to Your Credit

Your creditor will report the amount and the charge-off status to the credit bureaus and included on your credit report. The charge-off status will remain on your credit report for the full credit reporting time limit (which is seven years from the date of the charge-off) unless you can negotiate a pay for delete with the creditor.

Even paying the charge-off won't remove the account from your credit report or erase the previous charge-off status. After paying in full, your account will reflect a zero balance. While paying the charge-off doesn't immediately help your credit score, it does make you look better in the eyes of potential creditors and lenders and you're more likely to get future applications approved.