Close-up Of Pencil Eraser Erasing Debt Word On White Paper. concept: Charged Off Account
Betsy Wise
By: betsy_wise
Read in 8 minutes

Should I Pay Off a Charged Off Account?

Maybe you’ve wondered lately whether to pay off a charged-off account. This Italian proverb hints at a solution. 

A hundred wagon loads of thoughts will not pay a single ounce of debt.

In other words, turn those thoughts you have about paying off a charged off account into actionable results.

In this post, you will learn what a charged-off account is, the benefits of paying one off, and how to do it. First, let’s discover what a charged-off account is.

What is a charged-off account?

Accounts that creditors charge off are ones they can’t collect. They’ve transferred those debts from accounts receivable to bad debts and consider them as financial losses. Charge offs occur when borrowers fail to make regular payments against credit cards, loans, and other debt balances.

Charged-off entries on your credit report indicate you were severely delinquent on making payments. Creditors regularly send information to credit reporting agencies after borrowers reach a non-payment status of 180 days. 

Charge offs are considered the worst entries to appear on your credit report because lenders highly doubt your willingness and ability to repay borrowed funds. Likewise, your FICO score could fall into the fair to low range making it harder to borrow money.

Poor credit score report on wrinkled paper. concept: Charged Off Account

Should I pay off a charged off account?

Yes. Borrowers gain these benefits by paying charge-offs.

  • Improve credit

Creditors report charge-offs to the major credit bureaus. Those negative notations on your credit history report can stay there for up to 7 years. 

At the same time, the creditor may refer your unpaid debt to a collection agency. 

By paying off the outstanding debt, the creditor will report the charged off account as paid. Even though your credit score doesn’t go up immediately, paying a charged off account helps to improve your creditworthiness over time when you pay other accounts on time.

  • Reduce total debt

Having less debt has a positive effect on your credit score. The amount of debt you carry represents 30% of your credit score. By improving credit utilization, you won’t seem like a considerable financial risk to lenders.

  • Raise your lending odds

If you don’t pay a charged off account, it’s very unlikely creditors will approve credit applications. However, if they see that you paid off incurred debts, they’ll be more open to loaning you money. 

Keep in mind, you will probably pay a higher interest rate even when you’ve paid off the debt.

  • Owe less tax

Creditors are required to report charge-offs in amounts over $600 as income. You’re legally obligated to submit the amount as income on your tax return.

  • Learn to handle debt

There’s nothing quite as eye-opening as finding out you took on too much debt. 

When you can’t pay your creditors, it’s a wake-up call to review how you handle your finances. Your goal is to budget your money so you can pay bills on time and make regular deposits to an emergency fund to fall back on should money get tight.

Young couple reviewing invoices and doing family business plan. Concept of money and economic problem for man and woman living together. concept: Charged Off Account

How to pay off a charged off account

By following a few short steps, these positive actions can improve your credit history.

1. Set the goal to pay your debt

First of all, just because a creditor wrote off what you owe doesn’t mean you aren’t obligated to pay them. They may have stopped trying to collect the debt but haven’t given up.

Develop a mindset to make a good faith effort to pay the debt.

2. Make sure to know how much you owe

Next, verify the amount you owe. Ask the lender for a statement detailing charges, including interest and penalties.

If you haven’t already, be upfront with the lender as to why you fell behind on payments. Perhaps your income drastically reduced, or you had a medical emergency in the family. Creditors are usually more willing to work with borrowers when unforeseen circumstances contribute to a financial crisis. 

3. Send a “Pay for Delete” letter

Contact the original lender in writing by sending them a “Pay for Delete” letter. In the letter, you should indicate that you intend to pay off the debt.

In exchange for sending certified funds to the original lender or a collection agency that bought the debt, ask the creditor to remove information about the debt from credit reporting agencies upon receiving full payment. By doing so, there’s no written record that you defaulted on making payments.

4. Work out a payment arrangement

If you don’t send a “Pay for Delete” letter, contact the original lender/collection agency immediately. If it is a collection agency, ask them for proof in writing that they own the debt.

Then, work out a payment arrangement with them. If you aren’t financially able to repay the debt in full, see if you can negotiate a settlement amount. Settling the debt is better than not making an effort to repay a portion of the debt. Most creditors are willing to write off interest charges once you guarantee you can pay off the debt.

When you have funds in hand, ask your bank representative to write a letter verifying that they issued a certified check in the amount of the original debt.

5. Get your debt deleted from your credit report

Request a final payment letter substantiating that the debt has been paid. Make sure to check your credit history reports to verify that the charged-off account has been marked as paid or removed entirely per the pay for delete letter agreement.

If a credit report continues to show a balance, you can file a dispute with credit agencies and submit proof of payment.

Businesswoman and Businessman Shake Hands. Draw up a Contract, Filling Papers in Conference Room. In the Background Modern Bright Office with Glass Walls. concept: Charged Off Account

Keep growing your business 

Charged off accounts can wreak havoc with your business’s financial future. When you use debt correctly, you have money to grow your business as long as you make timely payments to creditors.

We invite you to keep reading:

woman and dog on floor with multiple debts. Concept: Debt consolidation vs debt settlement

Debt Settlement vs. Debt Consolidation: Which One Is Better For You?


At Camino Financial, we take our job seriously to reinforce our motto, “No Business Left Behind.” We offer microloan and small business loans, so your business is in a better position to succeed. 

Our loan professionals will work with you to find a loan amount that works within your budget. Additionally, we offer educational resources like this post and others to equip you to handle financial challenges.

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