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Credit FYI: Typically a 'charge off' is when a creditor, bank, or bill collector writes off a balance as "bad debt" because they believe they can't collect the debt. Usually this happens when a person has not made any payments for six months or longer. The lender will still try to collect the debt and then write as a charge off. They can report the charge off to credit bureaus. Charge offs can have negative effects on credit scores, but thankfully credit reports are updated often and positive information could help rebuild the bad information.

When credit card debts have not been manageable for a borrower, debt settlement may be one option to avoid bankruptcy. Many consumers have attempted debt settlement on their own or they hire a professional service to settle their debts. Creditors do not have to agree to a settlement whether from the borrower or a debt settlement company. Sometimes creditors are more willing to work with a company than an individual.

Debt settlement could reduce debt amounts by 30 to 70 percent. Even though credit scores can be negatively affected by settling, debt settlement can be a better option than bankruptcy. Only negotiate debt settlement with the original creditor and do not attempt to work with a third-party collection agency. Try contacting the credit card company in the event of difficult times and tell them you can't pay your debts. Let them know you may have to file bankruptcy if you can't reduce your debt amount. They may want to settle and get some money instead of no money when bankruptcy has been filed.

Accounts have to be seriously past due before a creditor will be willing to talk to you and consider settling. When payments are being made, you probably will not get anywhere with debt settlement. Many credit card companies won't settle unless an account is about 180 days past due and when it is they often charge off your debt and sell it to a debt buyer. It would be better if the creditor tries to settle with you as they would make less selling the unpaid debt to a third party.

When the negotiation process begins, send all correspondence via certified mail with a return receipt, and keep copies of everything. Document the dates, times, and the names of any people you talk to on the phone. It can take several months to reach an agreement for a debt settlement. When an acceptable settlement amount is agreed upon, get a copy of the agreement in writing before making any payment. Ask the creditor to put in writing that they will not sell your forgiven debt to anyone. This prevents a debt buyer from trying to collect the remainder of the account balance.