I Had Great Credit My Entire Life and Lost it All in 90 Days

Question:

Dear Steve,

I just purchased a house for cash which took up all of my financial resources. My goal is to get entirely debt-free. I still have a mortgage on my other home, which I am fixing up so that I can put it on the market very soon.

Sadly during all of this, I got Covid. As a result, I was hospitalized for six weeks, missed three paychecks, and spent my savings repairing the house and purchasing the other home.

I had perfect credit until a month ago and never made a late payment in the last seven years. Now I like to refinance my credit cards, but I somehow managed to go from a 780 credit score to around five hundred in two months.

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I was in the hospital, and I missed a couple of paychecks, so now I’m having a hard time catching up, and I’m 30 and 60, and even 90 days late on a couple of my cards. I only need about 25,000 to be entirely out of debt. Can you recommend a debt consolidation company, not a settlement company?

I want to keep all of my credit cards. I worked hard for my credit, and I don’t want to lose it all now. Unfortunately, I’m blind, so I’m dictating this message with my iPhone, and I apologize if there are grammatical errors.

Usually, I keep excellent savings. But, it just seems like this moment has been a perfect storm. I took a chance depleting my savings to buy the other house, and having this house not quite on the market yet, when I sell my home, I stand to make $70,000.

I wish I could easily pay the loans back. I’ve just sunk every penny into this home and barely getting by. But, unfortunately, I can’t go back to work until next week because I am quarantined. Do you have any suggestions?

At least two of my credit cards are threatening to close the accounts. I’ve worked so hard that I’m not sure how this is happening, but I took a risk and got myself here. I shouldn’t have taken myself down to the bone like this.

I’m learning this lesson the hard way. I’m usually so financially responsible. I bought a farm so that my children could live a wholesome God-fearing lifestyle, and I took a risk. I like to get my debt paid and recover from this.

It’s so funny. I spent so much time in my life being responsible for my credit and building my credit score. I never realized that you could take it in less than 90 days to tank my credit score.

My question is a good company that will accept my low credit score to refinance my credit cards to get them down into one payment and buy me some time to pay them all off.

Michele

Answer:

Dear Michele,

I’m so sorry that you’ve had this challenging learning experience.

Avoiding debt by using all the assets on hand is not a recommended strategy. Unfortunately, you found that out the hard way.

Life is full of nothing but unexpected situations. Therefore, we all need a solid emergency savings account since our obligations with others are absolute. In addition, things like taxes, insurance, and financial arrangements all have due dates and times when obligations are scheduled to be met.

From your question, it seems the issues are:

  1. You used all of your available cash to buy and repair a house to sell while maintaining another home.
  2. Your goal was to avoid debt and be debt-free.
  3. Your credit cards are now delinquent, which is dragging down your credit score.
  4. The goal is to find a consolidation loan to pay off the credit cards.
  5. You want to keep all your credit cards.
  6. An unexpected medical condition kept you from work for an extended period.

When people say they want to avoid debt, what they really should be avoiding is being overextended. You were overextended by using all your available cash on hand in this situation. Using a loan for part or all of this effort would have left you with money in the bank to make payments.

Borrowing money has an expense. But that expense should be considered insurance against these types of situations. It would have been better to pay some fees or interest and protect your credit than avoid debt and be cash poor.

Yes, using all the cash on hand was a significant risk, and it didn’t pay off.

Each credit card has its own set of terms and conditions. When you agreed to become a cardholder, there was a legal agreement you signed that described your duties and responsibilities. Honestly, you are judged by your creditors by your latest payment. Many years of good payments can be eliminated in just a few months.

While you want to keep your credit cards, that’s really out of your hand at the moment. Your creditors control your cards and access to them. They will decide when to close the accounts based on their current business policies. They might even cancel your cards when you become too delinquent.

Once you are about 180 days behind, your creditors will have to close your accounts and report them as closed. That is an Office of the Comptroller of the Currency reporting requirement.

Your chances of getting a consolidation loan in your current situation are low to none. Therefore, you are a prime candidate for being scammed with a loan promise. You have not made a payment for an extended period, and your credit score is low.

The logical solution at this time would be to continue to limp along. You can talk to your creditors and explain your situation. However, do not promise to make payments you can’t deliver on. That will only make things worse.

Your creditors are going to do what they are going to do. The best approach would be to allow your accounts to flow through collections and not rock the boat with hostility.

You could always talk to your real estate agent about what you could get for one of the homes in its current condition. But, unfortunately, sometimes you have to fire sale assets to get out of a bad situation.

It sounds as if one of the homes may sell soon, and then you can use those funds to repay your creditors and put money back into your savings account again.

Rebuilding credit will take a little time, but it is not impossible.

You will get to the other side of this mess. Unfortunately, it’s not going to be pretty, and recovering from it will take a year or two of determined effort to bring your credit score back up.

If you’d like someone to take you by the hand and guide you through these turbulent times, talk to my debt coach friend Damon Day. He can guide you and help you make the best decisions for a less traumatic ending.

Sincerely,

You are not alone. I’m here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don’t give up.

Damon Day - Pro Debt Coach