Should I Pay Charge-Off or Collection Accounts First?

When prioritizing debt, charge-off accounts are often the last debts to be paid.

Paying Charge-Off Accounts

A debt is not forgiven when it is charged-off, so you may face legal action on an unpaid charge-off account. Although paid charge-off and collection accounts are clearly labeled as such on credit reports, it is preferable for these accounts to appear as paid rather than unpaid.

Ignoring Charge-Offs

State laws dictate a statute of limitations after which creditors may no longer sue a debtor for bad debt. Sometimes paying a charged-off account resets this statute of limitations, making payment a potential disadvantage to the debtor if the debt cannot be paid in full. Whether in collection or not, an account that has been charged-off can only legally appear on your credit report and count against you for seven years.

Bottom Line

Businesses often sell their charge-off accounts to collection agencies, so an account can be both a collection and charge-off account. When forced to prioritize the payment of overdue debt, it is wise to pay debt that has not been charged-off first. It may not be to your advantage to pay charged-off debt at all if it is close to 7 years old and beyond your state's debt-collecting statute of limitations.

References

• Bankrate: Collection Agencies and Charge-Offs
• Bills.com: Advice on Dealing With Old and Charged-Off Debt Accounts
• Consumer Credit Repair Counseling: How Does a Charge-Off Work - Reporting Period/Statute of LImitations