Credit card debts that are racked up by consumers can quickly turn into a liability if they go unpaid. These debts are charged off by the credit card company if they are not resolved anywhere from around 6 months to 180 days after the date of first delinquency. All credit card companies must write off all bad debts in order to satisfy their investors and accurately report their gains and losses.
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Both online credit cards and traditional credit cards must write off credit card debts in the same way. Credit card accounts can be closed at the discretion of the accountholder or the credit card company, but this does not always mean that they have been charged off.
Consumers will receive notice from their credit card company prior to their accounts being charged off. Numerous late payments or payments that do not meet the monthly payment threshold can also cause credit card to be charged off. The About website explains that charged off credit card accounts are still collectible for years, by way of collection efforts or legal action.
How is credit card debt charged off?
When a credit card is issued, the accountholder agrees to make timely payments in order to retain his or her account. A credit card account must be severely delinquent before it can be charged off. Credit card companies will use their in-house collection departments to make phone calls, send letters, and attempt to negotiate with the cardholder in order to prevent the credit card from being charged off.
In some cases, cardholders can negotiate payment plans, interest rate reductions and even keep their accounts once their accounts become dangerously close to being charged off. However, if no payment arrangements are made, the credit card account will officially be closed and the accountholder will no longer be able to use the card.
After this happens, the credit card company that issued the card will take the total amount of debt owed and write it off as a financial loss. This Federal Deposit Insurance Corporation specifies how charged off retail and department store credit cards should reported.
What happens if your credit card is charged off?
If you are a consumer that has had his or her credit card account charged off, you have limited options. It is best to try to pay off your credit card debt in full, but any action that you take will still have a negative impact on your credit file. First, you should find out exactly who owns your delinquent credit card account before you promise to make a payment. If the original creditor is still willing to accept a payment, you might want to negotiate for a lower amount or ask to have the entire trade line deleted after the debt is satisfied.
Cardholders that do not attempt to pay off their charged off credit cards may end up being sued by a collection agency or the credit card company. Being sued for unpaid credit card debts does not automatically mean that you will have a judgment, but you could end up paying far more money in fees and legal costs. If you have the money to make payments, it is far better to initiate contact with your credit card company than it is for you to hope that the debt will just disappear on its own.
What is certain is that your credit score will plummet after your credit card account is charged off. Many major credit card companies are unwilling to recall credit card debts from collection agencies or negotiate in any way after the debt is written off. Having a charge off listed on your credit report will almost certainly prevent you from qualifying for an unsecured credit card until you have resolved the issue.
What do credit card companies do with charged off debts?
According to Suze Orman charged off credit card debts usually end up in the hands of collection agencies. Essentially, when a delinquent credit card account reaches a point in which it is unlikely to ever be repaid, the issuer must count it as a business loss.
A business loss can be used to gain federal tax incentives, but it also can be sold to another company for a fraction of its original value. Even if it is not purchased by a collection agency, it may be assigned to several collectors in order to maximize the likelihood of repayment. In either case, having a charged off credit card automatically means that your account has been closed.
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