Should I Wait Until My Credit Card Is a Charge-Off Before I Pay?
Credit cards present the opportunity to boost your credit score and give you access to hefty discounts. However, when credit card debt becomes unmanageable, the outstanding balance can wreak havoc on your credit rating. Waiting to pay your credit card balance until after your card is charged off is a bad idea, because it can lead to further credit woes.
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Negotiation
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A common misconception when falling behind on your bills is that account closure is inevitable. Though many creditors are likely to close your account after you become severely delinquent on your account, negotiation may be possible. If your account is at risk of cancellation, contact your creditor to discuss payment arrangements. Account cancellation due to an unaffordable credit card balance can sometimes be remedied with payment arrangements and reduced interest rates. Don't make the assumption that your account cannot be brought current or that allowing cancellation is your only option.
Charge-Off
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Once your account is charged off, it appears negatively on your credit report. A charge-off is a collection account that has been written off as a loss by a credit card company, often because it is severely delinquent. Having a record of abandoning debts can prevent you from opening new credit card accounts in the future. Creditors seek borrowers who understand how to manage credit responsibly and maintain positive relationships over time. The presence of a charge-off means you are likely to mismanage a new account and are a high-risk borrower.
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Debt Repayment
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Always communicate with your credit card company regarding making payment arrangements before allowing your account to be charged off. Even if the lender is unable to keep your account from cancellation, making payment arrangements can lead to your account being reported as "paid as agreed" rather than a charge-off. Accounts with the status "paid as agreed" on your credit report show that you take responsibility for your debts.
Considerations
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Your credit score is negatively impacted when your account is charged off. The top factors influencing your credit score are payment history, amounts owed and length of credit history. When your account is charged off and you make payments on the debt, it is not reported to the credit bureaus until the debt is repaid in full. Carrying a balance on a closed account leads to a high credit utilization ratio. A credit utilization ratio is the amount of debt you have relative to your available credit. The lower your credit utilization ratio, the more your credit score increases each month.
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