Are you getting harassing phone calls from bill collectors telling you that you'll be ruined financially if you let a credit card charge off happen? If you're constantly behind the eight-ball with your debt problems and are late with most debt payments, chances are you've heard the dreaded phrase "charge-off" from bill collectors. But, do you really know what a "charge-off" is? What will happen to you if you let a charge-off happen? And, what's the worst that can possibly happen to you, once a charge-off occurs?

What Is A Charge-Off?

Basically, a charge-off is when a creditor (bank, credit card company or other lending institution) writes off the balance of the loan as a "bad debt." Banks and other lending institutions count your debt owed to them as an "asset" on their books. After about six months of non-payment, the lender can no longer call this debt an asset. Of course, you still owe the money and they'll still try to collect it from you, and they will give you a "ding" on your credit report - definitely not a great thing, but not the end of the world, either.

A charge-off is not a cancellation of the account by the creditor. Your ability to charge on the account will be revoked about two months before the charge-off. You still owe the debt.

How Serious Is A Charge-Off?

Don't panic when confronted with the possibility of a charge-off - it isn't the end of the world! A charge-off is a serious situation, and can result in a big, bad mark on your credit report, and a lowered credit rating. You will still owe the debt, and bill collectors will do their best to collect. Always avoid the charge-off if at all possible, but don't commit payments to a high-pressure bill collector that you can't realistically make. Before you start paying down these bills, make sure you keep your household running by keeping current on food, utilities, insurance and medical expenses.

Professional bill collectors are notorious for applying huge amounts of pressure to force people to pay past due bills (that's how they make a living) that they really cannot afford. Sometimes these bill collectors want post-dated checks (checks written with a date in the future when, hopefully, there will be money in the account), and quite often these checks end up bouncing - compounding the problem.

Here are a few tips to help when a charge-off happens to you.

Keep In Touch

Stay in touch with your lender and determine what the minimum amount is that you can pay now to avoid charge-off. Frankly, this is one of the biggest mistakes people in debt make - they don't talk to their creditors. Record the date of the call, and who you talked to. Get any agreements on paper - have the lender fax to you any new agreements. Don't be pressured - only make commitments that you can follow through with.

Negotiate, Negotiate, Negotiate

Try to negotiate a lump-sum payment. Some lenders will be glad to get the debt off their books and may take 50% (or less) of the total debt. If you do make a deal this way, make sure you get it in writing and follow through! If you fail to make good on the deal, the lender will not be as forgiving in the future.

Even if your debt has been assigned to a bill collector, still try to work with the original lender - depending upon their relationship, you may still be able to cut a better deal with the lender. Once again, follow through is very important - if you make a promise, keep it!

Never Send A Post-Dated Check

Never send a post-dated check. If you're sending post dated checks, then you probably don't have the money in the account today - you're just hoping you will have money in there later! This is a recipe for disaster, as many who receive post-dated checks will attempt to cash them immediately - either taking money you had planned for something else, or bouncing the check, as there was no money in the account.

Also, never, ever give a bank account number to a creditor or bill collector - under any circumstances. This can be a fatal mistake - even worse for you than the charge-off.

Get It In Writing

This is one of the most common mistakes when dealing with bill collectors - the debtor (that's you) fails to get the new deal in writing. The verbal is worth the paper it's written on - in other words zero! With this type of arrangement, you will have no recourse at a later date. So, get everything in writing - always!

While a charge-off is definitely something you want to avoid, it surely isn't the end of the world. Remember to keep a cool head, don't make any commitments under pressure that you cannot keep, and get everything in writing.

Parting Thoughts

Panic makes every situation worse, and that certainly applies to charge-offs.

Most lenders don't want to do a charge-off, so remember that they are likely to at least talk with you about possible solutions - meaning possibly a reduction in balances for a lump-sum payment.

Keep a dialog going with your creditors. Even if you can't come to an immediate agreement with the lender, always keep the door open for further discussions. Not talking can lead to a worse deal for you.

Honesty is always the best policy. Only make commitments that you can fulfill. Follow through fully on any deals you make. And, keep good records of all agreements and transactions.

Learn the lesson. Always live beneath your means - spend less than you make. Don't support a lifestyle that you can't afford with credit, and your life will be financially stress-free. And, a debt-free life is a great thing.

About the Author:

Are you trying - without much success - to become debt free? Why does it always feel like you're just treading water in a pool of debt? Feel helpless no more! Drop by DebtReliefDr.com to get help with your debt! I've also got a free mini-book waiting for you that can help you get started on your own path to a debt-free life!