Should I Negotiate a Charge Off with the Original Creditor?

Reader Question: "I have some unpaid debts on a store credit card, and it has been sent to a collection agency. I've heard it's possible to negotiate a charge-off with the original creditor to have this removed from my credit reports. Is that really possible?"

It depends on the situation. In some cases, the original creditor (in this case the store who issued the card) will charge off the debt when they sell it to a collection agency. Every company has its own procedures and timelines for this process, but 120 days is the general rule. When accounts are overdue by more than 120 days, most creditors will transfer the debt to a collection agency. If that has already happened with your debt, then there would be nothing to negotiate with the original creditor -- it's past that point.

In other scenarios, the creditor will keep the debt on their books and try to collect on it using their own collections department. This is usually the first part of the process, before the debt gets charged off.

There's really no reason to negotiate a charge-off with the original creditor, because it won't help you much. Your negotiations would have to start before this point. A charge-off just means they are accepting the loss and writing it off their books.

Typically, when people negotiate with their original creditors about an unpaid debt, they are actually trying to settle the debt -- before it reaches the charge-off point. In other words, they are negotiating a lesser settlement amount to pay off. If your account has not exceeded 120 days past due, then there's a good chance the original creditor still has it "in house." If this is the case, and you feel you cannot pay the full balance for some hardship reason, you may be able to negotiate a settlement for a lesser amount.

I can't tell you how well this will work, if at all. Every creditor is different. Some will pursue reasonable settlements, while others have a "no settle" attitude. There's only one way to find out if they're willing to negotiate the debt -- and that's to contact them. If you do this, be sure to keep copies of all the communications between you and the original creditor. It's best to put everything in paper and correspond by mail, for tracking purposes.

How a Charge Off Affects Your Credit

As far as your credit score goes, the best-case scenario is to pay off the overdue amount in full. If you do this before the creditor has reported the missed payments, this issue won't affect your credit. If they have already reported it, then you are in "damage control" mode by trying to reduce the impact it has on your score. If you pay off the debt in full, your score will recover more quickly (than if you negotiate a settlement with the original creditor).

The worst thing you can do is ignore the debt entirely. If you do this, it will follow you for a long time. Debt collectors will sell the account among themselves, in many cases, and this often makes it remain on your credit report even longer than the seven-year limit by law.

Learning How to Negotiate from "Veterans"

I recommend you visit the credit forums on the MyFICO.com website. Use the search tool at the top of the site, and you'll be able to find some forum threads (ongoing discussions) from people who have been through this situation. Granted, they are the individual experiences of others, so you have to take them with a grain of salt. But it will give you a better understanding of how the process works, from people who have negotiated with creditors in the past.

Related article:
How does debt settlement affect my credit score?

I hope this helps you understand the process that takes place when people negotiate with a creditor prior to the charge off point. Remember, check out those forums at MyFICO.com if you want to learn more about it from people who have "been there, done that." Good luck.