Freddie used bad judgement when he was in college, and racked up some
$8000 in credit card debt.  Five years ago, all of his credit cards
were canceled by the creditors because he was unable to make even the
minimum monthly payments.  Over the five years he has been hounded by
collection agencies, so he moved and changed his phone numbers, but
eventually they caught up with him and started calling him again. 
When some of the collection agencies offered to "charge off" the debts
for significantly less than the actual amount of debt, he saved up and
made the payments because it seemed like the quickest way out of this
situation.

Now Freddie has been contacted by a collection agency about his last
remaining credit card debt, at a substantial amount of $5000.  They
have offered to "charge off" this debt for half the amount owed. 
Freddie has saved for six months to raise the $2500 to make this
payment, but wants to make sure that doing so is the right move.  He
acquired a copy of his credit report from a reporting bureau, and
noticed that all of the settled credit card debts are listed as
"charged off".  Freddie doesn't want to throw away $2500 if it's not
going to actually do anything to improve his situation.

Freddie doesn't make very much money, and it has been very difficult
to save even the reduced amounts to make these payments.  Paying off
the full amount of the debt is beyond his means.  Did Freddie make the
right move with the other debts?  Should Freddie "charge off" this one
too, especially in light of the fact that there are multiple other
debts "charged off"?  Or would he be better off waiting until after 7
years, when the debts are removed from the credit report on their own?
 Does a charge-off "renew" the 7-year duration of the bad credit?

If it is of any relevance, Freddie has had other debts which are paid
in full (not "charged off" and not delinquent), namely several student
loans and two different auto loans.  Only the credit cards have gone
to delinquency.

Please help Freddie.

Erikprice and/or Freddie,

You've certainly got yourself into a mess, and there are no easy
answers about the best way to solve this. I'm going to try to outline
what I know and point you in a direction so that you can find out
more.

First of all, I am not a lawyer and I have no professional training in
credit counseling. I remind you that what I'm writing here should not
be interpreted as legal advice.

Given your situation, I would HIGHLY recommend that you seek out a
professional credit counselor and/or an attorney to work with you on
your situation. The people who are contacting you to repay your debt
are professionals; their goal is to get as much money out of your
pocket as possible, and they don't care what happens to you and your
credit after you've given them money. You need an advocate to tell you
exactly what language to use in writing and speaking to your
collectors. Further down in this answer, I'm providing a reference to
a non-profit organization which may be able to assist you. PLEASE DO
YOURSELF A FAVOR AND CONTACT THEM OR SOMEBODY LIKE THEM.

On another note, there are plenty of scams out there where people
claim they can fix your credit for a low fee and without having to pay
off your debts. Don't believe them. Many of these are illegal and
won't actually help you.

Now, on to the actual answer.

The website "Your Credit Source" [
http://www.yourcreditsource.org/credit_tips/charge_offs.html ] has
this to say about chargeoffs:

"The term "charge-off" is used by accountants. It means that a certain
consumer's debt must be written off because he or she will not likely
pay...This doesn't mean that the creditor will not continue to pursue
collection, on the contrary, most will...Charge-off accounts are
reported to the credit bureau...This means that anyone who views the
credit history of that consumer will likely regard the charge-off to
mean that the consumer failed to meet their debts and that the account
is considered uncollectable. This leads to a very nasty impression of
a person's credit history."

Also,

"The horrible black mark of a charge-off cannot generally be removed
and, unfortunately, charge-offs are the primary reason for being
denied credit. Not only that but the consumer is still obligated to
make payment for this account. Once paid-in-full, the account can be
reported to the bureaus as a "paid profit and loss" account with a
zero balance. The charge-off status even keeps the consumer from
qualifying for a re-aging process (the act of bringing the account to
current and forgiving past due payments - often done as part of a
repayment plan) on the account. Also, before a consumer can purchase a
home or refinance a current mortgage "charge-offs" often have to be
paid-in-full.

Charge-offs, like most other credit blemishes, are removed after seven
years from the date the charge-off occurred. It's also possible to
"settle-in-full" instead of paying-in-full. What this means is that
you and your creditor reach an agreement in which a lump sum of less
than the actual debt amount will be accepted as full payment but this
does usually require a large amount of cash."


In summary: A charge-off is NOT something which you want on your
credit report! What you want is something called a settlement.


I found a similar definition for "charge-off" and the phone number for
"Budget and Credit Counseling" by using the search facility of
Experian, a credit bureau. The website for the results of the search
is [ http://www.experian.com/query.html?col=ckc&qt=charge+off&x=0&y=0
].

"Consumer Credit Counseling Service
	A non-profit organization that assists consumers in dealing with
their credit problems. Consumer Credit Counseling Service has offices
throughout the United States that can be located by calling
1-800-388-CCCS (2227)."

Calling this number, I spoke with Shirley in New York (her actual
phone number is 212 675 5070) and was given the following information:

* The company she works for is Budget and Credit Counseling. They are
a non-profit with the goal of helping people improve their credit.
They are willing to give small amounts of advice for free over the
phone, but they normally charge $50 for more extensive counseling.
They are not affiliated with any collection agencies or credit
bureaus, which means that information you give them will be kept
confidential from those hounding you.

* A "charge-off" is NOT something you want on your credit report. You
want a settlement. It is very unlikely that you will be able to get
the credit card company to list the debt as "paid-in-full," but you
may be able to get something better than "charge-off."

* Whenever dealing with a creditor, GET EVERYTHING IN WRITING!!! If
they say that they will list your account as "settled" for $2500, they
must send you the offer in writing before you pay or you will have no
way to prove to the credit bureau that you had an agreement with the
collector!

* The debt will drop off your credit bureau record 7 years after the
last payment was due. Paying off the debt should not affect this date,
though other factors may do so.

* Even though the credit bureau will no longer report the debt after 7
years, this doesn't mean that you're no longer liable. The company may
still come after you and demand payment or get a court to garnish your
wages. Therefore, it's best to have some type of settlement with the
details declared IN WRITING.


I highly recommend that you call the 800-number listed above and ask
these people what they can do for you. If you don't like this
particular organization, there are many other non-profits that will
try to help you in similar ways. From what you've written, I think you
need advice from somebody who can assist you professionally.


Finally, I'd like to advise you regarding Google's recommended pricing
at [ https://answers.google.com/answers/pricing.html ].


" $2 - $5   Can be answered with a single link or a single piece of
information. Sometimes, if a researcher is personally interested in
the question's subject, they may provide a longer answer. Not
appropriate for multipart questions."


Search Strategy:

I looked up "charge off" using Google, but the vast majority of
answers were from companies who accept a fee and claim to fix your
credit. I don't think that posting a link to this search would be
helpful to the customer because there's a lot of bad information out
there on this topic and many people who aren't afraid to scam people
in need. I also checked Experian's (a credit bureau) web site for the
phone number of a non-profit credit counselor and spoke with an
individual by phone.


I hope this information helps you.

/ephraim

---

Clarification of Answer by ephraim-ga on 06 Aug 2003 07:49 PDT

Here's one more useful link for you to refer to:

[ http://www.bankrate.com/brm/news/debt/20021216a.asp?prodtype=advice ]
Charge-off advice

/ephraim

---

Clarification of Answer by ephraim-ga on 06 Aug 2003 10:04 PDT

Erikprice,

Thanks for your kind words and the tip. I sincerely hope that your
situation will work out for the better.

/ephraim

ephraim, thanks for your comprehensive response.  Above and beyond
what I had expected -- and pardon me for not realizing the pricing
conventions, had I looked at that page, I would have listed at a
higher rate.  Pls take this tip as the most that I can afford right
now, though your answer warrants more.

Be careful with "consumer counseling services." Most are actually
funded by creditors!!! They fund these organizations because they have
a significant interest in collecting! You are always better off to
negotiate with creditors directly as in real estate - the real estate
agent who is showing you houses works for the seller! You might have
to search their sites, but generally you'll see something like this:

"Consumer Credit Counseling Services (CCCS) is a non-profit
organization offering free financial consumer credit counseling
services. We receive our funding from various sources, including
grants and fees for specialized education projects. Most funding comes
from voluntary contributions from participating creditors"

http://www.cccsnevada.org/

"Most funding comes from voluntary contributions from participating
creditors" - okay.. now you know who they are working for.

Collection agencies will take anything because the creditor has
already "written you off" and if they get something then they get a
percentage.

Call the credit card company and negotiate directly with them (get
anything they offer in writing before sending any money, but do call
them.) Offer them $500 - $1000 if they will settle and report it as
"paid as agreed." If you keep aksing a few times they might go for it.
After all, if they don't take it they get nothing. (unless you have
equity in a house or a paid off car you are considered judgement proof
and they know it - otherwise they would have taken you to court
already.)

After you reach a resolution on the 5k debt, call the other creditors
who "charged off" your debt. Use the rest of your 2,500 to try and get
them to accept something (don't offer too much) to settle and change
the report to "paid as agreed." They probably won't, but they might.

I know you've learned a tough lesson. (you are not alone - tons of
people been in/are in the same situation). Going forward, go out and
get a dept store card - JC Penneys, etc and buy something every month,
but then pay it off so you are reported as having used credit without
any late payments. Gas cards are usually not good as they don't always
report to credit bureaus. Then get a secured credit card - you deposit
$500 and then can spend against that so there is no risk to them. Buy
something every month but then pay it off.  You need to have activity
on the card. Shop around carefully for the secured card. The interest
is going to be very high and there wil be some fees, but read the fine
print. You should not pay any "monthly fee" annual fee yes, but it
should be no more than $50. Providian is a major issuer. Join a credit
union and ask them about a secured loan or a small loan. Pay it off
and then borrow again, when that is paid off, borrow again... The
positive activity is what is important. You need to show you can pay
on time now. Eventually things will improve. A credit union

Whatever you do - do not get a Sears card - they take a security
interest in anything you buy and it will come back to haunt you if you
ever have to file for bankruptcy (hopefully that will never happen.)

Also, stop moving around... you need to show stability too. One option
(if you are going to be moving but within a metro area)is to use a
relatives or friends house as your address. Use that as your address
on everything for as long as you can. Call the phone company and have
them add you to their listing - might cost $1 a month or something
like that. Use a cell phone at your place or have a phone in your
roomates/grirlfriends name.

Order your credit report regularly and review it for errors. Don't
fall for any "credit repair" services. The only things that will help
are time and positive activity.

I wish you luck. 

Mark

Mark800 has some good ideas about how to gain a good credit history
(i.e. secured cards), but I must disagree with his outright dismissal
of groups like CCCS.

I've said above (and Mark says below) that groups which claim to
repair your credit in a type of miracle are not worth your time and
can actually cost you money in the end. Your best bet is to find an
attorney who specializes in credit, but in the event you can't afford
that, a reliable and clean credit counseling service is a good
alternative.

Mark -- read the customer's original question. He got into this pickle
precisely because he TRIED to negotiate directly with the companies,
and got a raw deal. He doesn't understand his own legal rights and
doesn't know the terminology of the game. If he had a perfect
understanding of how to negotiate with them, he might have been better
off negotiating a deal on his own, but he obviously doesn't.

Yes, many of the CCCS non-profits are funded by credit card companies.
BUT (and this is a very big but) this should NOT be taken to mean that
they are inherently unreliable. The counselors don't "work for" the
credit card companies. They work for the non-profit. When I called and
spoke to Shirley in New York, I asked her a number of questions to
determine whether or not I thought her company was trustworthy. She
knew the definitions, admitted that erikprice/freddie had gotten a raw
deal, and insisted that consultations remained confidential. At the
very least, a consultation would mention possibilities and ideas that
erikprice/freddie might not have thought about before. In addition, if
erikprice/freddie feels uncomfortable, he can always try another
organization without any bad repercussions.

/ephraim