Does Charged-Off Credit Card Debt Count Toward Monthly Debt?

A charged-off credit card isn't considered a part of your monthly recurring debt, but it does great harm to your credit score. Charge-offs are considered very negative credit events, and can make it impossible to qualify for mortgages and other major loans. Multiple charge-offs indicate you cannot be trusted to pay your debts and should be avoided by lenders if possible.

Timeline

MSN Money reports that in general, credit card accounts are closed and charged off after you fall six payments behind. The account is listed on your credit report as charged off and then assigned or sold to a debt collector who attempts to collect in full. Another entry is added to your credit report indicating that the charge-off has become a "collections account." That can further reduce your score.

Debt Ratios

Recurring monthly debt is considered when mortgage companies and other lenders request a listing of your debts to determine if you can afford more credit. For credit cards, you must list the current minimum monthly payment for each card. However, once accounts are charged off, regular minimum monthly payments no longer apply.

Credit Repair

Charge-offs are unavoidable for some people because of long-term unemployment, illness or excessive debt. Once the financial setbacks are over you should resolve charge-offs to rehabilitate your credit. The Fair Credit Reporting Act allows charge-offs and collection accounts to be reported for seven years, although the impact on your credit score will lessen over time. Some so-called credit repair firms advertise that they can remove charge-offs within 30 days, but the Federal Trade Commission reports that most of their claims are bogus. The FTC strongly recommends that you resolve charge-offs personally.

Pay-for-Delete

Some people with charge-offs negotiate directly with lenders and debt collectors to have negative credit information removed. The process is called "pay-for-delete" and results in charge-off or collection account information being removed from your credit report in exchange for full payment. However, creditors and debt collectors are under no obligation to agree.

Paid Charge-Offs

It's smart to pay charge-offs even if pay-for-delete is not possible. Paying the charge-off resolves the debt and helps with your credit repair. The charge-off becomes a "paid charge-off" once you make payment. Collection accounts will also be updated to show that they are paid.