Prevent a Credit Card Company From Charging Off an Unpaid Balance

Individuals who fall behind on their credit card payments are in danger of a charge-off. Steps can be taken to prevent this process in order to avoid such negative consequences as derogatory information on a credit report, lawsuits and a potential wage garnishment.
Prevent a Credit Card Company From Charging Off an Unpaid Balance

When Will a Credit Card Company Charge Off a Debt?

According to MSN personal finance columnist Liz Pulliam Weston, a credit card company will normally charge off debts after six months passes without a payment being received on the delinquent account. Although most credit card companies charge off old debts, they are not legally obligated to do so and may hold a debt on the books indefinitely.

The purpose of a charge-off is simple: it can be claimed as a loss on the company’s business taxes. After six months it becomes clear whether or not a consumer intends to submit funds to cover the unpaid balance. If the debtor leaves the bills unpaid for this length of time, the company assumes that the debt will never be paid and will often choose to use it as a business write off.

Proper Budgeting Can Prevent a Charge-Off

When individuals find themselves in financially taxing situations, credit card debt is often the first bill to be neglected. Restructuring a budget to include minimum payments, however, is vital to prevent the unpaid balance from being charged off and turned over to collections.

One good way to structure a new budget is to do away with small luxuries in favor of keeping up with credit card payments until finances improve. Even low-cost purchases, such as a cup of coffee on the way to work each day, can quickly add up to equal more than a monthly credit card payment.

Negotiate a Debt Settlement Agreement to Avoid a Charge-Off

Credit card companies are sometimes open to negotiating debt settlement agreements with consumers who are unable to meet monthly payment obligations. With a debt settlement, an individual pays less than the amount owed and his or her credit report updates as “settled”. Although a settled account does not reflect favorably on a credit report, it is better than a collection account or worse - a lawsuit - if the individual ceases to make payments at all and defaults on the balance.

Unfortunately, credit card companies are most open to negotiating debt settlements with consumers who have missed recent payments and are clearly demonstrating financial difficulty. Individuals with an exemplary payment history may find it challenging to convince a creditor to take them seriously about their inability to pay the debt.

Liquidate Assets to Pay a Credit Card Bill

The most damaging aspect of a charge-off to a credit score isn’t the charge-off itself, but the barrage of late payments leading up to the charge-off. The best case scenario for all individuals who find themselves with credit card debt is to pay the debt off all at once. This prevents interest rates and fees from continually boosting the amount owed and making it much harder to pay down over time. It also eliminates the need for continual payments, thus preventing late payments from occurring.

For those that would like to pay off credit card debt once and for all, making small sacrifices can ultimately pay off and get rid of debts that are an ever-increasing source of stress. Various options for paying off credit card debts once and for all are:

  • Liquidate savings accounts
  • Cash in stocks, bonds, or cds
  • Have a yard sale
  • Sell large assets such as a home or car and purchase a more reasonably priced one. Use the profit difference to pay off credit card debts.

Although it may seem unreasonable to cash in savings to pay unsecured debts, an individual can then take the money he or she saves every month from not having an outstanding credit card balance and apply those funds to rebuilding lost savings.

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