What banks and bill collectors call a "charge-off" is the point at which the creditor writes off the account balance as a "bad debt." It usually happens after six months of non-payment. After that, they no longer count it on their books as an asset. You still owe the money, and they will make continued attempts to collect it from you. But the creditor has been forced by the rules of accounting to zero out the debt on their financial ledgers. For causing this loss, they will place a derogatory mark on your credit report.

Charge-offs should be avoided if possible. Collectors usually demand payment via post-dated checks, and this frequently leads to bounced checks and even worse financial problems. Good credit is important, but committing to payments you really can't afford just to preserve your credit is counter-productive.

Below are a few rules to follow when trying to avoid a charge-off that hasn't happened yet:

* Don’t be intimidated or threatened by pre-charge-off collection tactics. Don't take it personally when collectors try to get under your skin.

* Call your creditor to find out the minimum payment necessary to avoid the charge-off, and subsequent payments to keep the account current going forward. Don't commit to this payment (or series of payments) unless you're sure you can follow through.

* Negotiate a lump-sum settlement at 50% or less if you have the resources, or a workout plan for monthly payments that you can live with.

* Do not allow bill collectors to talk you into using post-dated checks, or providing your checking account details over the telephone. Instead, make payments via cashier's check or money order.

* Do not make payments based on a verbal arrangement. Get the deal in writing and signed by a creditor representative who has authority to approve the workout plan.

What should you do if you simply don't have the money to rescue the account from charge-off, or if the account has already been charged off by the creditor?

* Realize that you still have an opportunity to resolve the matter by dealing with the original creditor or the collection agency assigned to the account.

* Negotiate a lump-sum settlement with the creditor or collection agency. Aim for 50% or less, and ask for the charge-off to be deleted from your credit report as a condition of the settlement.

* Make sure the creditor or collection agency will update your credit report to show that the matter has been resolved and the account has been satisfied.

* If you can't work out a deal with the collection agency assigned to your account, then wait until it goes to another agency. Eventually, it will either be assigned or sold to an outfit that you can deal with to get the matter cleared up.

Contributing Source: Charles J. Phelan, EzineArticles.com

Charge-offs are negative reflections on your credit report, which can seriously reduce your credit score. Removing settled charge-offs from your credit reports is an important tool in your effort to repair your credit. Creditlawgroup.com can help facilitate this process. Click on the link to learn more.