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My Debt to Income is Very High and Nobody Will Give Me a Loan – Lisa

“Dear Steve,

I am living on social security and savings, which are quickly becoming very scant. As my roof leaked over my head as I was sleeping, realized I needed to do something about this and thus began my quagmire (good word!) of a problem. Paid $8000. from five 0% promotional credit cards, carefully figuring out how much each card needed to be paid every month so as to not incur interest on any of them.

Have been trying to borrow $15,000 to be repaid in 4 years in order to pay off cards and not continually pay $800 per month to these Companies, but due to 48 mos repayment, could easily pay $300-400 instead.

The problem is that NO ONE and i do mean NO ONE (banks, Loan Cos., Lending Club, Am One, Spring leaf, etc, etc.) will give me a loan. Credit score is 785 but my DTI is Very high!

Any feedback would be GREATLY appreciated and I would forever be in your debt (funny word for this question).

I look forward to hearing back from you, and btw, am job hunting, so if you need another pair of eyes, or researching, etc. please, also let me know. Thanking you in advance.

Lisa”

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The Answer

Dear Lisa,

Thank you for reaching out and asking your questions.

So let’s take a step back here and look at your situation from an outsider/lender point of view.

It seems you’ve already demonstrated that no matter how good your credit score might be, the underlying issue is you are maxed out. The amount of debt you have is very high when compared to your income. And that makes you a very high risk for lenders.

It is very frustrating that the time you desperately want to borrow money is the time most legitimate lenders start to back off.

As you may know, I’m a fan of LendingClub.com and an investor in loans. I even help fund reader loans through Lending Club. But, and the big but is, even though Lending Club is somewhat more liberal than Main Street banks, they too have lending limits based on past borrower performance.

Even with their more liberal standards they still have losses and loans that go unpaid. The fact they would not lend to you a clear sign you are in trouble.

My Debt to Income is Very High and Nobody Will Give Me a Loan   LisaThere isn’t anything you’ve shared that would indicate a loan is the best way out of this quagmire (great word). You are draining savings to get buy, and juggled cards but it does not sound as if the debt has been reduced in the process without draining assets.

The fact you are draining savings to make ends meet is a huge red flag for me.

Savings is there to call upon in an emergency but a continued reliance on it is not a strategy, it’s a sign that things have to change. It’s like the pain of a headache or the cough of a worsening cold. It’s a symptom.

Your credit score is the least important factor in this situation. Your credit score is just a number that is assigned to you for the lender benefit. It is not an indication of how great of a job you do with your personal finances.

Over the years I’ve seen people do some pretty silly things just to try to maintain their credit score. In the long run they’ve wound up in worse shape.

So let’s set our sights on turning this situation around.

Our goal needs to be to get your life to fit within your income. To do that, and based on the fact you are primarily living off Social Security, we need to set our sights on some action that will quickly and rapidly bring your expenses back within your income.

What we have going on here with you at the moment is a classic example of dissavings.

My Debt to Income is Very High and Nobody Will Give Me a Loan   Lisa

That’s where your expenses exceed your income and you drain irreplaceable money to get by.

The one part of this equation we don’t have on our side here is time. The more time that passes without taking action to alter the situation, the longer you will drain what little savings it sounds like you have left and the worse spot you will wind up in.

The key to overcoming this is swift and decisive action to bring your expenses back inside your income and leave a margin for saving again.

Rather than continue to chase the loan it’s time for you to meet with a local bankruptcy attorney and discuss what bankruptcy would mean for you.

You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.

Bankruptcy is not an option of failure, it is an option of accepting responsibility for the reality of your current situation.

My ultimate goal is to set you off on a path that gives you the best chance of a safer future and not chasing the elusive loan which clearly is too risky for you in your current situation.

By accepting the reality of the situation and taking action you will be able to do better moving forward and have the best possible chance at a better tomorrow.

To better understand bankruptcy, I’ve pasted a number of links below to help you get rid of the common misconceptions and dispel the myths.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

My Debt to Income is Very High and Nobody Will Give Me a Loan   Lisa
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If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Bankruptcy Articles and Posts You Must Read

To get ready to read the information below with the right frame of mind, please first read How Do I Get Out of Debt Quickly? Change Your Mindset.

Bankruptcy Advice

Life After Bankruptcy

Filing Bankruptcy Yourself

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Lisa

    I belong to PenFed Credit Union and just received an offer to transfer all my debt with NO charge with a 4.99% for life. Even though I am now on 0% interest for at least another year, was wondering what you think of using this 4.99, stretching it out for 4 years, and maybe paying $350 per month instead of $700-800?? Again, many, many thanx.

    • http://GetOutOfDebt.org Steve Rhode

      The interest rate is almost the least important issue here. The 0% promotional rates are designed to trap you on the cards anyway.

      Two things to consider.

      1. If you have a car loan with the credit union, this loan will most likely be used as collateral against that asset. Meaning if you paid of the car and wanted to get the title you might now as long as this loan is outstanding.

      Second, if you lower your payment using this loan does it leave you in a position where you are able to save money consistently each month and save for retirement on top of that?

  • SouthernGal

    Steve,
    Instead of your standard “file-bankruptcy-and-put-the-problem-behind-you” answer, how about helping her take responsibility for the debts she incurred.
    She says she paid 8K for a roof job. That would imply she owns a home.
    That home will continue to have costly maintainance expenses in repair & upkeep. My recommendation is she sell that burdensome home & move
    to a hassle-free & affordable apartment. Yes, she will have monthly rent payments, but compared to the expenses of home repair, insurance, taxes, updating appliances, paint, carpet… Think of the freedom THAT offers & the knowledge she paid her financial obligations.
    For a senior citizen who has outstanding FICO score (and charming & humorous vocabulary), recommending bankruptcy to cover a mire 15K in debt is foolish advice. She obviously takes pride in being self-reliant and comes across as a go-getter, take charge (no pun intended) individual. Selling her property, paying off her debts & banking the difference could bring real peace of mind.
    Sincerely,
    ~Been There, Done That

    • http://GetOutOfDebt.org Steve Rhode

      Other points of view are always welcome.

      To answer your question about why I gave the advice I did, she did not say she owned the property she lived in. I did not want to assume she did. She also did not specifically say she paid for the roof repair so I didn’t want to assume that as well.

      I stand behind my answer that the key is saving this situation is the speed in which the dissaving can be eliminated.

      For me, it’s more important to get back to a position of rebuilding the savings than taking time we might not have for a slow recovery.

      If she lives in a mortgaged property then yes, sometimes selling and renting can be a cost saving move. Not only do you lose the upkeep, insurance, property taxes, and mortgage, but renting is basically a flat rate you can budget.

      You raise the point of “the knowledge she paid her financial obligations.” But this is a problematic argument from my point of view. I get the point but mathematically and logically it is often not the winning answer it tough spots. It’s something I wrote about in this post http://getoutofdebt.org/52217/

      As I said, “Who is the wisest and more virtuous? The person who spends all their efforts on fixing the past or prudently preparing for a safer financial future?”

      It is not the amount of debt that is the determining factor for bankruptcy as a solution. It’s the situation and the goal that needs to be accomplished. If the answer is to create a safer future quickly because of income and age then almost regardless of the debt.

      • SouthernGal

        I could be wrong, but i think it’s pretty clear from Lisa’s letter that she paid the 8K in roof repairs. And unless she is really foolish to pay roof repairs on someone else’s property, then she owns the property. Again, It’s reasonable she sell the property, pay her debts, move to an apartment & live happily ever after.

        As recommended, i read your article, “You Have Not Failed if you File Bankruptcy”. It is a well thought-out rationalization for an individual to side-step one’s financial obligations & lay it on the backs of their creditors. Bankruptcy should be an option for catastrophic situations (huge medical bills etc)… not for 15K as in Lisa’s situation. Our country is in a mess of a situation because of folks not taking responsibilty for themselves but rather leaving it for others to clean-up.
        We’ll just have to agree to disagree.
        ~Been There, Done That

      • http://GetOutOfDebt.org Steve Rhode

        I actually just answer a question on Facebook for someone that had done just that. Paid for repairs in hopes of the landlord paying for them.

        I’d love to talk this trough.

        Not assuming she owns the house or even has an equity in it, what is the mathematical advantage in paying her way out of this situation and taking longer to get back in a position of saving?

      • SouthernGal

        Mathematically? Rationally?… none – file bankruptcy.
        Don’t give it (or others) another thought.
        The RIGHT thing to do…. pay the debt.
        How? Get a job, have a yard sale, get her family to step-up… she sounds like a very can-do person fully capable of managing & paying-off this debt. The feeling of doing the right thing and having a credible testimony & peace of mind is priceless.

      • http://GetOutOfDebt.org Steve Rhode

        What is “the right thing to do?” Is it better to sacrifice a safer financial future to repair the past or learn from the situation and protect yourself from further future risk?

        I understand the emotional position but you can’t eat emotional and it’s a poor fuel for the furnace.

        In a perfect world everyone would be able to find a job, not drain savings to get buy, and not be so maxed out their debt to income ratio is all out of wack.

        Outside of setting ourselves individually up for a safer financial future, what financial safety net is there?

        And let’s not forget, there is nothing that prevents people from repaying what they can afford to while they are recovering and saving.

        You can still get protection and meet your emotional obligations.

        Since you mentioned testimony, you might be interested in what the Bible actually says about bankruptcy. http://getoutofdebt.org/48286/what-does-the-bible-say-about-bankruptcy-is-bankruptcy-scriptural

      • SouthernGal

        He also said, “give back to Caesar what is Caesar’s” in Matthew 22:21.
        I am pleased you are reading scripture and i will pray for you (and other readers of this blog) to grow spiritually in the truth and love of our Lord Jesus Christ thru a good bible-based church. The bible is quite relavant today for teaching us how to manage our finances, health, and relationships.

      • http://GetOutOfDebt.org Steve Rhode

        So it’s not so clearcut is it? Would your Jesus punish or forgive?

        So it’s not so universal then is it. It appears you are adding a particular religious slant to the argument.

        And that’s not a universal point of view. Take the Imam I interviewed previously.

        http://getoutofdebt.org/22114/debt-religion-a-look-at-the-islamic-view-of-debt-with-imam-asal

        And then there is the POV about bankruptcy being sinful. See http://getoutofdebt.org/33451/is-bankruptcy-sinful-and-bad-or-right-and-moral-an-examination

        I’m not saying you are not entitled to those beliefs. What I am saying is that in providing debt advice for all I base my advice on helping all without consideration of race, creed, religion, or sexual orientation.

      • Lisa

        I wanted to especially thank you, Steve. Still pondering solution(s), but its GR8 to know I’m not alone!
        Lisa

      • http://GetOutOfDebt.org Steve Rhode

        Learn, percolate, ponder and then take action.

        You are NOT alone.

        If you can provide some feedback, can you click on the button that says “Rate Our Site – Leave a Testimonial” and let me know if I helped you.

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