Truthfully, a charge-off is one of the worst things that could happen to your credit report and score. Charge-off happens after your account has become 180 days delinquent. By the time a creditor decides to charge-off your account, you’ve been late for six months. All those months of late payments take a tremendous toll on your credit score. But, you may be able to take advantage of a charge-off.

Typically, creditors no longer allow you to make monthly payments on your account once it’s been charged-off. Instead, they demand full payment, but they may consider a lump-sum settlement, if you make a good enough offer.

Debt settlement is a negotiation where your creditor accepts less than the balance due and agrees to cancel the rest of the debt. However, creditors don’t usually take settlement offers on accounts that are all paid up. These accounts are still making money for the creditor so the creditor has no incentive to take a settlement. An account that’s been charged-off, on the other hand, is a more attractive candidate for debt settlement. That’s because the creditor has already written off the debt on their accounting books.

The creditor might accept a settlement on a charge-off because something is better than nothing. Many charge-offs go unpaid for years. Eventually, the account gets so old that the creditor sells it to a junk debt buyer for just a small fraction of the original amount. The amount you pay on a settlement is probably much higher than what a junk debt buyer would pay for the account in a few years.

If you’re trying to reconcile delinquent accounts and you have any that are charged-off, consider making a settlement offer to your creditor. The offer can be made in writing or over the phone. Even if you make the offer on the phone, you still need to get something in writing from the creditor before you make payment.

The amount you offer to settle the charge-off depends on the balance due and what you can afford to pay. The settlement payment typically has to be made as a lump sum. If the creditor accepts your settlement offer, you need to be able to pay up within a few days. Otherwise, the settlement offer might expire and there’s a chance the creditor won’t negotiate with you again.

Aim for an amount between 40% and 60% of the balance due. The older the account is, the less you might offer for it. Also, if the account has already been purchased by a junk debt buyer, you might offer around 40% or less.

Don’t let an account get charged-off just so you can try to get a settlement out of your creditor. A charge-off is too devastating to your credit and a settlement isn’t guaranteed. For example, your creditor probably accept a settlement from you if they check your credit report and see that you’re paying all your other accounts on time. But, if you’re legitimately having financial problems and several accounts get behind, a creditor may be willing to negotiate with you.

While a charge-off is a negative credit report item, you may be able to get it behind you quickly by settling the account. You'll have a $0 balance and you can start focusing on bouncing back from such a damaging blow to your credit.