How to Pay Off Charged-Off Debt (2024)

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Most lenders and creditors write off an account as a bad debt six months after it becomes delinquent. That doesn’t get you off the hook for paying the money you owe, as the debt will appear on your credit report as a charge-off. The creditor can then turn the account over to a collection agency. Although settling an old debt can lower your credit score, it is smart to pay off the debt if you want to apply for a home loan.

Step 1

Obtain a copy of your credit report to look for any debts that were charged off. When debts are charged off, the creditor considers them a loss, although you still are responsible for paying the debt. Credit card companies frequently charge off debts. Besides the entry made by the original creditor, your credit report will show any credit collection agencies that have reported that they are trying to collect on the charged-off debt.

Step 2

Contact the original creditor to see if you can negotiate a payoff. The original creditor might be willing to work out payment terms, if it has not yet sold the debt to a credit collection agency. Otherwise, you need to contact the collection agency to initiate any negotiations. If you can’t find contact information for the credit collection agency that now holds your account, ask the original creditor to give you the information.

Step 3

Make a payoff offer over the telephone to determine if the creditor or collection agency is willing to work with you. You have more bargaining power if you can make a lump sum payment rather than offering to pay off the debt over the course of a few months. It may be possible to settle the debt for 50 percent or less of the total amount due. However, this depends on how long the debt has been charged off.

Step 4

Tell the creditor or collection agency that you will only agree to a payoff arrangement if you can have the negative report associated with the account removed from your credit profile. You should also request that the original creditor update your account as being paid in full. Request that any collection agency involved do the same. Avoid having the account reported as "settled." The Bankrate website suggests that if the creditor will not list your account as paid in full, ask that it at least be updated to say "paid as agreed" or “account closed.”

Step 5

Request to talk to someone who has more authority if the first person you reach is unable to offer you a payoff arrangement. Account managers are often the people who have the authority to negotiate a payoff. Don’t become discouraged if you need to speak with more than one person before you begin to make progress.

Step 6

Ask the collection agency or creditor to send you a letter so that you have the terms of your payoff agreement in writing. Inform the creditor that you will not pay any money until you receive a letter that clearly states all the terms of the agreement. The letter should also include the authorized signature of the creditor or collection agency. If you want, you can write and forward your own letter to the collection agency but don’t sign it until it is signed and returned to you by the collection agency. According to personal finance expert Suze Orman, consumers are forewarned that although the original creditor may stop adding interest charges once the account is charged off, the collection agency can continue to add its own fees until the account is paid.

Step 7

Send money only after you receive a signed copy of a written agreement. Use certified mail whenever you make a payment. Pay by personal check or money order. Never send cash. Keep up your end of the agreement and pay as agreed or the arrangements you made will be void. The collection agency then has the right to begin the collection process again.