In accounting, the term to write off means that an asset is being recognized as having a reduced or zero value. Write off in income tax statements means that taxable income can be reduced as a recognition of certain expenses required to produce the income.
But what about the specific use of the term write off debt when it applies specifically to that huge pile of money that you owe? What happens when credit card companies write off debt is that they report to the government any money that they have not managed to collect from creditors. This is written off as lost income.
Let's say that for six months you have been unable to make payments for your credit card bill. The credit card company will turn over your delinquent account to a collection agency. As you may already know, having an account turned over to a collections firm will negatively impact your credit and finances in general - so having your debts written off by defaulting on your payments should be a last resort.
Next, let us delve a bit deeper into the topic by enumerating the pros and cons of having your debts written off. First let us look at the advantages.
All your debts can be combined into a single, manageable monthly payment. No taxes will get charged on your credit card balance. It is a way of dealing with debt without having to declare personal bankruptcy. You don't have to pay additional late charges and fees and you can live a financially stress and anxiety-free life and stop getting harassed by your creditors.
The only real disadvantage is that your credit rating will be negatively affected.
The systems that we can use in order to write off debts differ between the UK and the US. For US residents, creditors opt for debt settlement arrangements while those in the UK take advantage of IVA or the Individual Voluntary Arrangement.
The IVA is a legally binding agreement between a person in debt and an unsecured creditor. What it does is allow you to pay off your debt within a reasonable time, without your having to be forced to sell your property. On the other hand, debt settlement arrangements in the US work similarly, where you will not be forced to file for bankruptcy but your credit will be negatively affected.
So how would you know if deciding to write off debt is the best decision for you? First, keep in mind the pros and cons of having your debts written off. Before you decide to stop making regular payments, try to settle your debts with your credit card company first. This may help preserve your credit score and allow you to repay some or all of your debts.
However, if you find yourself having to deal with more debt than you can actually handle, determine if the advantages far outweigh the disadvantages of having your debts written off - and make a decision from there. Always seek advice form a reputable company. Either a recognised debt settlement practitioner in the US or a good debt management company in the UK. It is best to follow recommendations and apply to several companies before making any decisions.
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