How to Avoid a Charge Off

A charge off is the bane of any credit report. A charge off, the credit industry’s term for a delinquent account that will not be repaid, gets sent to the big credit reporting bureaus and lowers a person’s credit score by a significant amount.

Any lender will see a credit report with a charge off on it and be extremely averse to approving any loan or line of credit for the person responsible for the charge off. If you’ve got charge offs on your credit report, and you want to buy a new home, then you can expect problems. There are ways to avoid charge offs, however, which are good to know before they happen.

How to Avoid Chargeoffs

The best, easiest, fastest, smartest way to avoid a charge off is to live within your means.

Many charge offs are credit cards that someone used to indulge every single purchasing whim, and then woke up to a mountain of debt that they couldn’t get out from under.

Buying dinners out and stylish new clothes at the mall was amazingly easy, paying the $1,000 a month credit card payment that they resulted in, not so much. So tactic #1 in avoiding a charge off would be no charges in the first place.

Have you Already Gotten a Chargeoff?

If you’re past the preventive phase, and are now dealing with a potential charge off crisis, a critical tactic to avoid a charge off is to stay in touch with the lender and seek to re-negotiate the terms of your repayment plan.

No lender wants to lose the money they loaned you, and if the best you can do is make lower payments every month, the fact that they’re still getting money — albeit not as much as they’d like — could very well motivate them to work with you. It goes without saying that some money is better than no money at all.

To learn more about how to avoid a charge off, be sure to consult with a debt counselor. There are many of them out there, as well as consumer advocacy groups that seek to advise people in tough financial positions.