Chasing Financial Freedom

Charge-off Accounts: What They Are and What to Do About Them

February 21, 2022 TruPodcast Season 3 Episode 12
Chasing Financial Freedom
Charge-off Accounts: What They Are and What to Do About Them
Show Notes Transcript

You have a lot of debt, and you're not sure what to do about it. You've heard the term "charge-off" but don't know what it means.

 A charge-off is when a creditor has decided to write off your debt as uncollectible. This doesn't mean that the debt disappears - it simply goes onto your credit report as a charge-off account.

 Don't panic! A charge-off can have a negative impact on your credit score, but there are things you can do to improve your credit score and get help from a financial coach. In this episode, we'll discuss what charge-offs are and how they can affect your credit score. We'll also talk about how you can get help from a financial coach.

Ready to get out of debt? Schedule a free 30-minute Financial Coaching Session Now!

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Speaker 1:

Hey guys, Ryan true podcast. I hope you're having a great day. Welcome back new week new podcast, and we're gonna continue the theme of debt charge off accounts or charged off accounts. However you wanna say that what the are and what to do about them. And I've been around this business for way too long, and I've heard some pretty crazy stories on why charged off accounts should be removed from people's credit bureaus or should be wiped out to zero. Uh, you'd be amazed at some of these stories. So if you're interested in those stories, stick around and I'll see you guys on the other side. All right, guys, welcome back. All right, here we go. Charged off accounts. What are they? They are accounts that have been charged off on your credit bureau. Obvious for nonpayment and nonpayment can be anywhere to, depending on the type of debt that you had could be anything from a credit card to a student loan, to a personal loan, uh, to a car note, to a payday loan. They all get reported to the credit bureaus. You can also have apartments on there. So there are different types of debts that are out there, a mortgage, but they go charged off or go into a status of charged off. Once non-payment is received after X amount of days for a credit card, it's typically 120 days. Uh, you have some credits that go 180 days. Student loans can go 180 days. Also. Sometimes they go less. Sometimes they go more, depending on the creditor and the creditor is either a private student loan or a federal student loan federal loans typically get charged off later in life around 210 days. So why is that important? Because these items that are on your credit, a bureau are going to impact it for many years to come, unfortunately. So once you let it become charged off what let's just go back up once you actually let it become delinquent, you're already starting to get a hit on your credit bureau score, but then you're also gonna start dealing with collection calls, collection emails, collection, text messages, collection letters, and there's all, there's all types of things that are gonna happen. But then unfortunately, if you let it go all the way to the end and it charges off, then now the creditors now writing that debt off to bad debt, which means they're taking a loss on it. And there's gonna be three things that can actually have happen. One, they keep the debt in house where they work with their own internal collections department to recover the funds and work with you on a payment arrangement or a settlement two, it gets outsourced to a collection agency. They will then re-report this debt after 30 days per the FD, CPA and FFC a as long as you don't, you don't dispute the debt within that time, they will actually re-report it. So now you're gonna have two trade lines for one debt on your credit bureau. And the third is gonna be the same thing, but a little bit worse is it'll be referred to an agency or excuse me, an attorney. And that attorney will then pursue legal matters against you. So they'll get, they'll start the legal process to Sue you. And then once if they do win and there's no challenges, not saying they always win, but if they do win, then they can start garnishing your wages and also do a bank levy or, or I call it just a, a, a tap. So Heading these things off at the past before it gets too late is, is critical. Because if you let it go so far, it's just gonna eat you. And you're not gonna find your way out of this hole. So once you are behind on an account, the number one thing that I always told people to do when I was in the collections world is call and work with your creditor. If you don't call and have discussions with them, then they're just gonna assume that you're avoiding to pay the debt, tell'em that you can't pay and explain to them what's going on. And, and maybe they have a hardship for you that you can work on smaller payments over time to get back on your feet, or maybe they'll allow you to pay at least the interest for a period of time, and then start getting you a principle and interest payment. There's so many things you can actually do. There's forbearance and deferment. I highly suggest not to, it's better to pay than to defer it and just keep on eating up more fees and interest. It just becomes crazy. The other thing that you can actually do, uh, if you're in a situation to where you don't know where to go, you can go to a credit counselor, you can go to a financial counselor or a financial coach. Um, you can also go to, um, a nonprofit there, there are some churches out there that do credit counseling for their members. Uh, but the biggest, the, the biggest two that, that I can suggest that I know from personally is consumer credit counseling, which is used to be consumer credit counseling. Now it's called credit.org. Uh, and then a financial coach, the financial coach you're gonna have to pay for, but that financial coach is gonna give you a lot more information than just drive by. They're gonna, he or she is going to help you through that whole process. They're gonna put you on a budget. They're gonna get your debt paid off. They're gonna help you get your debt paid off and also give you the tools that you need to succeed. So you don't get into that same situation again. So charged off accounts, they hit credit bureaus. What do you think happens? They kill your credit score typically anywhere between 50 and a hundred points. So if you were already delinquent, you already had some hits there on your actual credit bureau. You're gonna have some more from this charge off. And when it goes to an outside agency or to an attorney, they're gonna also report it. So you're gonna get dinged twice. So it's gonna be double the fund, highly, highly suggest. If you have charged off accounts on your record, on your bureau, first start with the original creditor, the person that you took the loan out from, and start working with them to see if they'll work with you. If they'll work with you, put a payment plan together, maybe you can scrounge up some money or bring some money together and you can do a settlement. Maybe you can actually work with them to re age your account. Some debts you can re age after X amount of payments, like student loans, only federally backed student loans can be re after 12 consecutive monthly payments. There aren't very many other debt instruments or loans out there that can be re that's. Just one that I know of there might be. You might be able to do something with a car loan, uh, credit cards. No, because it's a, it's, it's a CLO it's closed end. It's charged off. You lost your charging privileges. Um, I'm trying to think of anything else that you potentially could, and I can't think of anything right now off the top of my head. So sorry, but communication, communication. A question that I get asked pretty consistently. Should I pay off my charged off account? Absolutely. Yes. If you're telling me it's a valid debt, so you're telling me that there's no fraud, you've agreed to the, the terms of the actual loan. Also, by the way, you agree to the dollar amount, maybe the dollar amount amount might be off. You need to research that they could have added, uh, charged off fees. They can add interest in there. There's a lot of different things that gets your balance to, uh, actually explode in, in go north. But if you're telling me that the balance in the count is valid. Absolutely 100% do not pass, go directly to the creditor and start making payments, because it will only help you in the long run because the longer you leave that debt on there, the longer it's going to be a problem on your credit bureau, the sooner you start paying it, the sooner it goes to a zero balance and the sooner you can actually start recovering your credit score, period, if anybody tells you otherwise, they're crazy because if you took out the loan in good faith to pay it back and you couldn't pay it back and something happened, and now you're at the point where you can, you need to pay it back. Preferably in full, the settlement leaves a whole different piece, uh, that you don't wanna mess with. And we can get into that at a later date, but the settlement will leave money on the table. And if it's greater than$600, if you guys don't know this, the IRS will consider that income. And guess what? Anything above$600 will be taxed and you'll get a, you'll get a W2 for it. So be prepared for that. Now, if the, the charge off is incorrect, you need a dispute at, through the credit bureaus and you have to be very precise on your dispute and what it looks like. Because at the end of the day, if you don't give them enough data to where they understand that, you know what you're talking about, uh, on the debt and why it's invalid, they're just gonna deny it. And you're just gonna keep on spinning your wheels. That's why, if you have enough of these on your credit bureau, seek help consumer credit counseling, a financial coach period. You need the help they'll get, they'll help you get outta debt. They'll help you get these charge offs taken care of and whatever you do, please, please do not do a debt consolidation, which you wouldn't be able to do on these. But please don't do that in the other is debt settlement. Please don't do those, cuz they're gonna also come back on you because once you're at that point, they potentially could settle. And then the creditor come back and say, well, I guess I didn't like that. So guess what? We're gonna ask you for the rest of the money. It does happen. People think it doesn't. It does. So be on the lookout for that stay away. How do you pay off a charged off account? Well, you gotta get a payment arrangements together. You gotta get a payment plan together with a creditor. If you can't work with a creditor work with the agency, if you can't work with the agency, work the attorney. If it's at an attorney, they're gonna put you on a stipulation more than likely. If states supports that stipulation is, is basically a legal judge, a legal document that allows them to set aside any type of, of legal proceedings, as long as you make payments. But in there is what they call a COJ confession of judgment. And if you miss payments, they get to file that paperwork with a court immediately. And boom, they've got a judgment against you. It's default, and they can go right to garnishing your wages and also hitting your bank account. You don't want that. So if you're going to put yourself on a payment arrangement with either an agency and attorney or the creditor, make sure you can actually make the payments onto time every single month. And it's gonna be within your budget back to a budget. If you don't know how much you're spending on a monthly basis, and you don't know how much you're making, you're in deep trouble in this situation, that's probably why you got here. I'm just being real guys. I, I, I don't, I don't sugarcoat things here. So if you don't know what's going, what's coming in and what's going out, you're in trouble. So what you need to do is first put a budget together and underst Dan, your financial pitcher. If you are spending more than you have coming in, that could be your problem. If you're, if you have more debt than you know how to service, that can be a problem. The only way you figure out what your problem is, is by putting that budget together in an understanding what it is. If I was in this situation, the number one thing I would do is cut out all the unnecessary, spending the Starbucks, the going out to lunch and dinner, going to movies, uh, going on, shopping, sprees, whatever the case is, you take all the of money and you put it towards these charged off accounts. This is also part partly what I teach and what I share with my financial coaching clients. If you want to be debt free, you've gotta sacrifice. And if you want to clean your credit bureau up to where you can buy a house, cuz you've been renting all your life and you want to get it right. And now you've decided that, uh, you're ready to go. Maybe you had a life event, you got married and you're gonna have kids and you want, you need a house. Well guess what your credit bureau has to be cleaned up. You have to be able to pay your bills or demonstrate that you can pay your bills to your creditors. Well, guess what you have got to get the charged off accounts off your credit bureau. The only way to do that is to zero them out. Will they remove them once? They're zero potentially, but there's this little thing called FFC, R a, which is the fair credit reporting act. And if a creditor or an agency or an attorney network or an attorney says that they're gonna do it for one, they have to do it for all. So there has to be some special circumstance that they can put in play. If you are going to have your charged off account removed from your credit bureau, typically once you pay it in full it'll show on your credit bureau, as paid in full, if you settle, it it'll be settled in full for less than the full amount. So that will also affect your credit bureau too. That won't, that will impact how your score is able to increase over time. When you pay it down to zero, then that will allow it to grow. I say, grow, wow. I, I need, I need some help. It'll allow it to be able to, uh, increase over time at a quicker rate. And no one knows the exact algorithm and what they're using on the three bureaus. I'm just learning from the years of experience that a paid in full is a lot better than a settled in full. And it also looks better to credit because creditors say, oh, it's zero balance. There's no risk. There's no exposure for them. So guess what? They will lend you money for your mortgage. Can the let's go back to it. Can the charged off account be removed from the credit bureau? Yes. Like I said earlier, special circumstance says, have I done it before? Yes. Uh, unfortunately there's a lot of different things that, that went into play. But one of those things was, I was just talking to a co-signer on a student loan. She was an elderly lady. I would probably say she was in her early eighties. She co-signed for one of her grandchildren, the grandchildren, sorry, the grandchild went south and she ended up having to pay. But she literally paid 30 days after the charge off because she wasn't getting our notices. So when the notices didn't come and we could, she could prove it. I, I, she knew that she owed the debt that's no, no, no question. So she paid it in full and it was a substantial amount. It was like close to$20,000,$18,000 or something like that. I was okay to do that because she wasn't notified. So she wouldn't be impacted from that. That's what I'm talking about. That's a special circumstance, you know, under F D CPA, F C a, there's a lot of different nuances in there that you need to know that the creditor, the, and the attorney have to abide by, especially when they're calling you and they're asking you for money. They there's a mini Miranda. They have to do a debt validation. Uh, they have to let you know that the call may be recorded for quality and training purposes. I mean, there's a lot of different things that have to be done from a regulatory standpoint that you guys should be aware of. But if you don't know these things and you don't know where to start, you have to get help. Cuz ultimately if you're not getting help, you're not making progress and you're not getting yourself into a better place. And how are you gonna pay off your debt if you don't know where to start because you're overwhelmed. So if you guys need help, consumer credit counts the now credit.org or a financial coach, I'm more than willing to help you guys on the financial coach side cuz that's what we do. We help people get their credit bureaus, right? So they can buy houses period. And also by the way, we love to see people debt free. You can buy a house and then pay off your mortgage and be totally debt free. But you gotta do the work. It's all about the work. It's all about putting in that work. All right guys, I hope you guys enjoyed this one. I know it's not happy times in, you know, uh, rainbows and unicorns, as I say, but understanding how charged off accounts work, how your credit bureau works is critical in getting out of debt and making that you're financially healthy. I mean, we all need to be on, uh, a level that is beneficial to us financially, but also being educated on how credit bureaus and different things that go on with it. Especially when it comes to trades, when it comes to your debt and how it's reported and how it's affected by you making payments and not making payments, making on time payments, making late payments. So if you are struggling, reach out to us, we'll get you connected and see where that goes for you. We'll help you out as much as I want you guys to live a debt free life. I want you guys to be healthy, happy, prosperous, and enjoying the best life you possibly can. And the only way to do that is be educated on your financial health. And when you do that, you're gonna put yourself in a better place. And you'll be able to share this information with others, whether it be your family or friends, and you'll be able to pass that along to your kids. How would you like your kids? Not to have to go through the same things that you had to go through in your life. And then they can pass that information onto their kids and their friends who knows where that goes. But in the end it doesn't hurt to know. And it doesn't hurt to understand how these things work to put yourself in a better place. That's it for this episode, a true podcast op you guys have a great day, stay safe, stay healthy. Remember to have those conversations. We are humans. We do in enjoy communicating with one another and it's okay to disagree. Don't cancel the other person out cuz you guys can agree on a topic. Continue to talk. If you don't like one another, that's fine, but it's okay to not agree on topics because we are divided and polarized. And I wanna see us come back together and be able to be unified. I'll see you guys on the other side, have a good one.