If there’s one thing we know for sure about credit, it’s that debt doesn’t just go away. When you’re dealing with high debt, it can be tempting to look for an easy way out. Terms like “debt settlement” and “charge-off” could have you thinking it’s possible to escape debt without repercussions.
Unfortunately, any time you fail to pay what you owe, it will impact your credit score. A “charged-off” debt is no exception.
A creditor may give up on being repaid under the original terms of a credit agreement—whether it was an auto loan or a credit card. But that doesn’t mean you no longer owe the money.
Lenders who charge-off a debt typically send it to a collection agency, which will then attempt to recover as much of the remaining amount—plus interest and fees—as they can. The agency may be acting on behalf of the original lender, or may have bought the debt from the company. Either way, you still owe the money to someone.
Collections appear on your credit report and can negatively impact your credit score. A charged-off account and related collections actions will remain on your credit report for seven years.
Allowing a debt to go into “charge-off” status, and then collections, is no solution to a debt problem. A better choice would be to try to negotiate with the creditor for repayment terms you can cope with, and that will be less harmful to your credit history.
The only real way to make debt disappear is to pay it.