These days, credit cards are almost indispensable, providing convenience and financial flexibility. But while using credit cards for everyday purchases is becoming more common, its also not unusual to face financial challenges that can lead to missed payments. If the problems and late payments keep happening for a long time, the credit card debt might be written off. This happens when the creditor thinks it can’t be collected and stops counting it as an asset. This usually happens after 180 days of not paying.
For cardholders, the situation can feel confusing. On one hand, the debt is technically still owed, yet its considered “written off” by the creditor. When this happens, though, the credit card debt doesnt just disappear. While creditors write off debt as a loss on their balance sheets, they typically dont forgive it. The debt remains yours to pay, and it will likely be sold to a collection agency, which can lead to further damage to your credit score.
Because a debt that has been written off can be bad, you may be wondering if you should do something to fix it. So, should you pay credit card debt that has been written off? Below, well break down what to know.
Credit card debt is a growing problem for many Americans With rising costs of living and stagnant wages, more people are relying on credit cards to cover basic expenses This often leads to mounting credit card balances that become increasingly difficult to pay off. When consumers can no longer afford their minimum payments, credit card companies may eventually “write off” the debt.
What Does It Mean When a Credit Card Company Writes Off Debt?
A credit card company “writes off” debt when it takes the debt off its books and records it as a loss. Legally, the debt is still there, but the credit card company has stopped trying to get paid.
There are a few common reasons a credit card company may write off debt:
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The debtor files for bankruptcy. During the bankruptcy process, credit card debt is usually wiped out. The credit card company has no choice but to forgive the debt once the bankruptcy is over.
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The debt is past the statute of limitations Every state has time limits, known as statutes of limitations, that dictate how long a creditor can legally sue a debtor to collect debt. Once a debt is past the statute of limitations creditors can no longer take legal action. At this point credit card companies often write off the debt as uncollectible.
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The debtor can’t be located: If a debtor moves without updating their contact information with creditors, it becomes very difficult for credit card companies to collect. After exhausting collection efforts, these debts are usually written off.
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This person owes money and has died. Usually, you can’t get their debts from their estate unless they co-signed on someone else’s account. When the debtor dies, the creditors have to erase these debts.
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The amount of debt is small: If the balance is very low, it often costs credit card companies more in time and money to keep trying to get paid than what they could get back. So very small balances are commonly written off.
How Does Writing Off Debt Affect Consumers?
When a credit card company writes off debt, the account will usually be closed and noted as “charged off” on the debtor’s credit reports. This causes significant damage to the person’s credit score that can persist for up to 7 years.
However, it’s important to note that written off debt is still legally owed. Credit card companies can choose to sell charged off accounts to debt buyers and collection agencies. These third parties may aggressively pursue collection through calls, letters, lawsuits and other tactics.
Some benefits of having debt written off by the original creditor include:
- The account is closed so no further charges can be made.
- Interest and fees usually stop accumulating on the account.
- The creditor will stop their collection efforts and calls.
- Settlement may be easier with debt buyers than the original creditor.
On the downside, written off accounts continue to negatively impact credit for years. And people with written off debt are still vulnerable to collection harassment. Overall, credit card charge offs make it very difficult for consumers to get approved for financing or decent terms on loans.
Can Credit Card Debt Be Written Off Before Charge Off?
Technically, credit card companies can write off debt at any point when they believe the account has become uncollectible. However, creditors typically don’t immediately write off balances when borrowers initially fall behind on payments.
Instead, credit card companies will make efforts to work with struggling debtors in order to rehabilitate the account and continue collecting. This process often includes:
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Repayment plans: The creditor may offer reduced payment plans over 3-6 months to help catch up on the debt. Interest continues accumulating during this time.
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Settlement offers: A one-time lump sum payment that’s less than the full balance may be accepted to settle the account. Remaining debt is written off.
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Hardship programs: Borrowers with long-term hardships may qualify for temporarily lowered interest rates or waived fees to reduce monthly payments.
If the account can’t be brought current through these options, then the credit card company will charge off the debt and write it off. Charge off typically happens at 180 days past due, but policies can vary between creditors.
Can Written Off Credit Card Debt Be Revived?
Once an account has been charged off, the creditor writes it off and closes the account permanently. The balance can’t go back to “active” status with the original credit card company.
However, if the charged off debt gets sold to a debt buyer, the new debt owner may restart collection efforts and sue for payment. Debt buyers often revive old debts that were previously written off so they can profit from collection.
Even debts beyond the statute of limitations that are no longer legally enforceable can be troublesome if revived by an unscrupulous debt collector. Although you can no longer be sued, you could still receive threatening calls insisting payment is required.
To avoid issues, continue communicating with any new creditors or debt collectors that contact you attempting to collect on a charged off credit card account. Don’t ignore notices regarding sold debt – respond promptly and assert your rights under federal and state debt collection laws.
How to Deal with Credit Card Debt Before Charge Off
If you’re struggling to pay credit card bills, take action before your accounts get charged off and written off. Contact your credit card companies as soon as you start falling behind and explain your situation.
Ask if they have hardship programs or other options to help temporarily reduce your monthly payments and avoid charge off. Some potential solutions include:
- Requesting lower interest rates
- Paying only the minimum amount due
- Setting up temporarily reduced payments
- Consolidating debt with a balance transfer or debt consolidation loan
You can also contact a reputable nonprofit credit counseling agency for free help negotiating with credit card companies. Counselors can often get concessions from creditors to minimize damage to your credit if you act quickly.
Options After Credit Card Charge Off
Once charge off has already happened, you have a few options:
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Pay in full: Contact the debt buyer or collection agency and pay the full outstanding balance if you have the means. This will stop collections and begin rebuilding your credit score.
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Attempt to settle: Offer a lump sum payment that’s less than the full amount to satisfy the debt. Any remaining balance will be written off. Get the settlement offer terms in writing before paying.
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Declare bankruptcy: Filing Chapter 7 or Chapter 13 bankruptcy will eliminate credit card debts, providing you a fresh start. But it will severely damage credit for around 10 years.
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Wait out the statute of limitations: If the debt is past the time limit for legal action in your state, the collector can’t sue you. But you’ll still get collection calls and credit damage.
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Assert your rights: Under consumer protection laws like the FDCPA, you have rights related to communication methods, frequency, and verification of debts. Educate yourself and don’t tolerate illegal collection practices. Send cease and desist letters if needed.
Can I Get Credit Card Debt Written Off Without Charge Off?
It’s extremely difficult to get credit card companies to write off debt before they’ve charged it off – but not necessarily impossible.
One way is to prove the debt is incorrect. If you can provide valid evidence the credit card company is attempting to collect an invalid amount, they may be willing to write it off entirely and close the account. Dispute errors as soon as they appear on statements.
You may also be able to negotiate credit card debt write off in cases of severe hardship where you have no assets or income. The creditor sees no possibility of ever collecting, so they may agree to write off the balance if you provide documentation of your situation. These cases are rare, but can happen.
Otherwise, credit card lenders will almost always go through normal collections then charge off before ever agreeing to write off debt voluntarily. Your best chance is contacting them quickly when you default and convincing them to work with you to rehabilitate the account.
The Bottom Line
Having credit card debt written off by the original creditor can provide some relief from collection harassment and fees. But it still causes significant damage to your credit that can take years to fully recover from. Also, the debt can be sold to aggressive collectors who won’t hesitate to pursue payment.
Before debts reach charge off status, do everything possible to work with credit card companies and avoid defaulting on your accounts. If you’ve already been charged off, deal directly with any debt buyers you’re referred to and be aware of your rights. With patience, perseverance and a debt repayment plan, you can eventually put the situation behind you. But written off credit card debt isn’t a quick fix or an easy way out.
Should I pay credit card debt that has been written off?
Paying off written-off debt may seem counterintuitive, especially when its no longer considered an asset by the creditor. However, addressing this debt proactively can offer both short-term and long-term benefits, such as improving your creditworthiness and reducing your financial liabilities.
In other words, if you want to pay off a credit card debt that has been written off, you should think about how it will affect your finances. It’s possible for a written-off debt to show up on your credit report as a negative mark for up to seven years. This lowers your credit score and makes it harder to get good credit terms. It will still be there after you pay it off, but the status of the debt will change to “paid” or “settled,” which is usually a good thing.
Another reason to consider paying written-off debt is to stop ongoing collection efforts. When creditors write off debt, they generally sell it to collection agencies that will then pursue payment. By paying the debt — either in full or through negotiation — you can eliminate further collection calls, letters and potential legal action. Plus, clearing old debt can make it easier to move forward without these financial obligations hanging over you.
That said, every state has a statute of limitations for collecting old credit card debts. After this period, creditors or collection agencies cannot legally sue you to collect the debt, though they can still attempt to contact you. Understanding whether your debt is past the statute of limitations can help you make an informed decision about repayment.
Ultimately, if improving your credit or achieving financial peace of mind is a priority, paying or negotiating the debt can be a positive step. On the other hand, if the debt is close to the statute of limitations in your state, you may choose to wait, as creditors cannot legally sue you to collect the debt after this period.
How to tackle old credit card debt
Addressing old credit card debt that has been written off requires a strategic approach. Here are several options that can help you manage or reduce these debts effectively:
- You can negotiate with your creditor or a collection agency to pay a portion of your debt in one lump sum, which the creditor agrees to accept as full payment. This is called debt forgiveness or debt settlement. This could be an easy and cheap way to lower your debt.
- Debt consolidation: If you have a lot of debts that have been written off, you might want to look into a debt consolidation loan. One debt is merged into a single loan, which usually has a lower interest rate. Also, a lot of companies that help people get out of debt have debt consolidation programs that can lower monthly payments and make paying them back easier.
- Credit counseling: Credit counseling services can help you figure out what your choices are and make a budget that works for you. A debt management plan could lower your interest rate or fees, making your debt easier to pay off. They may also help you sign up for one.
- Bankruptcy: Bankruptcy can help you start over if you are drowning in debt, but it can hurt your credit for a long time. Some credit card debt, even debts that have been written off, can be erased or restructured through Chapter 7 or Chapter 13 bankruptcy.
Paying off written-off credit card debt can be beneficial, but its not the right choice for everyone or every situation. Each persons financial situation is unique and its crucial to evaluate all available options before making a decision. Debt settlement, consolidation and credit counseling are all viable paths for those looking to manage their debt more effectively. So, if youre unsure about the best course of action, weigh your options and consider what works best for your unique circumstances. That way, you can ensure that youre taking steps that align with your financial goals.
Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
7 Tips To Negotiate Your Credit Card Debt | Clever Girl Finance
FAQ
Will a credit card company write off debt?
Should the challenges and missed payments continue longer term, the credit card debt could ultimately be written off, which is when a creditor considers it uncollectible and no longer counts it as an asset — typically after 180 days of non-payment.
Do credit card companies do debt forgiveness?
One possible path is debt forgiveness. This strategy typically involves negotiating with your credit card issuer or a debt collector to settle your balance for less than the full amount owed. In exchange for a lump-sum payment that is lower than your total debt, the remaining balance is forgiven.
How can I get my credit card debt written off?
Which debt solutions write off debts?Bankruptcy: Writes off unsecured debts if you cannot repay them. Any assets like a house or car may be sold. Debt relief order (DRO): Writes off debts if you have a relatively low level of debt. Must also have few assets. Individual voluntary arrangement (IVA): A formal agreement.
How long before a credit card debt is written off?
Unsecured credit debts The Limitation Act says that the limitation period for simple contract debts is six years. The cause of action (when the limitation period starts running) for simple contract debts is usually when your agreement says the creditor is able to take court action against you.