What It Means to You

After a write-off, lenders typically sell the debt to a collector for a fraction of the credit card balance. If your unpaid balance was $4,000, the debt collector might pay $1,000. He now has the right to pursue you for payment because you still owe the money -- the debt doesn’t go away, and the write-off is a significant blemish on your credit report. If you eventually pay off the entire balance due, that’s a pretty good return on the debt collector’s investment, and this is why debt collectors have a well-earned reputation for being more tenacious and determined than original creditors. Even if you do pay the debt off through the debt collector, the smudge on your credit record stays there for seven years.

What It Means to the Lender

Lenders don’t write off and sell debts because they get tired of asking you for payment. They do it because it saves them money at tax time. Before the debt is written off, it’s an asset -- it’s money the lender is owed. After it’s written off, it’s a loss. As a loss, it’s tax deductible and the lender can also deduct it from its financial statement.