How Should I Handle Some Really Old Debt?

What do you do when an old money mistake is about to finally disappear from your credit report? On this episode, I talk with someone with a defaulted car loan that's just two months away from that seven year magical mark.And now they're hoping to buy a new car and a house within the next year. Should they pay it off now or wait it out? And could the wrong move hurt their mortgage chances? That's what we're breaking down on today's show.Oh, we ride. Hey, friend. Ralph Estep Jr. Here. Welcome to Financially Confident Christian.My goal on every show is to help you break that cycle of financial shame and live in confidence. And today's about one of those situations that all of us have faced at one point in another, and that is credit issues.And specifically, the question we got today is should you pay off an old debt or let it fall off your credit report? Let's get right into today's question. Listener wrote this. Ralph, my last car loan payment was almost seven years ago.I stopped paying after the car broke down. I couldn't afford both the loan and the repairs. I was young and I made a decision I didn't fully understand at the time.Now I've read that defaulted loans fall off your credit after seven years, and I'm about two months away from that. My credit score is currently 573 and I'm hoping to get a mortgage and a car loan within the next year.I now have stable income making about $5,000 a month. But here's my question. Is it worth paying off the old loan now or should I just wait for it to fall off? But then I got another question, too.He writes this and should I wait to get a car loan until after I get a mortgage? I love this question. This is a question we get all the time. One of the things that I noticed right away is you sound anxious.Sounds like you've got a new job, you've got a good job. You feel very stable in where you are. You're thinking about. I'm thinking about I might be able to buy a house. But you're also discouraged.You made a decision and I totally get your decision. You were faced with a decision, do I make this payment or do I pay for the repairs? Now what I don't know is did they repossess your car?Do you still have the car? There's a lot of open questions here, but you're also alluding to the fact that you are responsible for this. And that's a beautiful thing.You're not pretending this didn't happen. You're just trying to move forward wisely. So here's the first thing I'm going to tell you. Your next best move is not a panic moment.It's really to build a why sequence. And I'm going to talk you through that right now. Let's jump right into it. First thing I'm going to encourage you to do, do not pay it blindly.You're about two months away from this actually falling off your credit.And that timing matters in general, most negative credit information reports for about seven years now, we got that right from the Consumer Financial Protection Bureau. And I got a little experience with this because I used to run a credit union. So paying now might create an instant score jump.It might be great, maybe, oh, I'm going to pay this now. My score is going to jump up. But here's the problem you don't think about.It might reawaken something and it might still show as a negative paid history on your credit report. So take a step here before acting from fear. And let's take a look at going a little bit deeper. Which leads me to the second thing.We've got to confirm the details here.One of the things that I recommended everybody do, pull all three of your credit reports at least once a year and look at those things like you're reading a novel from beginning to end. Check to see if that old car loan is on each one of those. It may not be on there now. You might have thought, hey, this is not going to be on there.Or maybe it is on there, but go look for the first delinquency date. Go look and see if there's an expected removal date. See who owns the debt now and see if there's even a balance listed. Because here's the truth.It may have been what they call charged off. The lender might have just written it off and it just says charged off unpaid. But do that and dispute those things.There's a lot of things people don't realize with your credit report. You might be able to have it removed simply by disputing it because that lender might have gone out of business.Maybe they don't care because it's been so long ago. They just don't. It doesn't matter. So think about maybe you dispute it. Keep track of those things.Another thing I'm going to encourage you to do is check your legal risk first. I am not an attorney. I don't pretend to be an attorney. So before you pay or promise anything, get some qualified advice.This is a good starting point. I can tell you, having worked in the lending industry for a long time, what you could do.But it may be a good idea to contact a consumer attorney or, or a nonprofit credit counselor. Now be careful there. There are a lot of these scoundrels out all over the Internet promising you to repair your credit.Most of those people are scammers. I'm talking about a nonprofit credit counselor that is specific to your situation, that is not in it for the money.Because there's a lot of people out there that say, I'll fix your credit. Especially they feel that you're trying to buy a house or something like that. But also look at your state specific rules, because here's the thing.Old debts can involve statute of limitation issues. In some states, a payment or a written promise can actually revive the legal correction risk. They might just bring this thing back to life.That's definitely not what you want to do. And that's why you don't want to call and negotiate casually. Get clarity first and understand where you're going. Now, you've already said it.You want to buy a house. Your credit score is 573. You're probably not going to qualify for a mortgage at a 573 credit score.And if you do, you're going to pay a really high interest rate. Old debt matters when you're looking at your credit score, but your current habits matter too.And that's why you've got to focus here on every open account that you've paid on time. It's so easy to get mired in the bad decisions you made in the past.But there are things right now that you can do, even with bad things from the past, to improve your credit score. A lot of people don't think about this one. Make sure your credit card balances are kept low. Make sure you're not missing any new payments.Start building that cash cushion. And listen, you talked about Carlin. We'll talk about that in a second. But don't build any more debt before you get into the mortgage.You are rebuilding your credibility, but you got to realize it's going to be done one clean month at a time. Which leads me to this. You asked this question, Ralph, what should I do about a mortgage and a car loan?If it's possible at all, Wait for the car loan. A lot of people get this urge to go get that car loan and get that house. You've got the new job and I respect that. But here's the problem.That car loan is Going to add monthly debt. That monthly debt affects what's called a debt to income ratio. Lenders use that to judge whether you're going to get a mortgage or not.There's percentages. It's not for today's show, but there are percentages.And I've seen people not get qualified for a loan because they went out and got another loan right before the mortgage. Now. So if your transportation is safe enough, go get the mortgage first.Now, if you're at the point like Ralph, I can't even get to work because this car just died in the driveway. I'm going to recommend something here. Go get the smallest reliable car you can get. Now this isn't a time to buy your dream car.Not the time to get that super upgrade. Not an emotional upgrade, just reliable transportation. But I want to take this a little deeper because you mentioned this old debt.And that old debt doesn't just affect your credit in a lot of ways. I think it's affecting your identity.I've read that in between the lines of what you said, it makes you feel like your past is still hanging over you. Like that one bad decision you made gets to define your future. But that's not how God sees you. God's not holding your past over your head.He's leading you forward with wisdom and with grace. So this is a great time to go to him and maybe just say, lord, help me move forward here with wisdom and not shame and guide my next step with peace.Because I want to tell you something right now, you're not stuck where you are. You're doing what I call sequencing your comeback. And I can't wait to see how that plays out for you. So here's your win for today.I want you to set one calendar reminder for 60 days from today and just put on your calendar, check that old car loan on all three credit reports. That's your win today. Just one measurable step and one clear follow up.It'll be interesting and do write back to me and tell me how this played out for you because I'm really interested in seeing how this worked out. But let's go to our Bible verse for today. It's from Proverbs, chapter 3, verses 5 and 6.It says, Trust in the Lord with all of your heart and lean not on your own understanding. In all your ways, acknowledge him and he shall direct your paths. And I just love this Bible verse for today.This decision that you're in right now needs wisdom and needs timing and it needs trust. You got a lot on your plate. So take it to the Lord, this is not a time to live in fear. But go ask for that wisdom, that timing and that trust.And I'm very confident you'll make the best decision. How about we pray together right now? Heavenly Father, I lift up my friend today. You know the weight that this old debt has carried.You know the regret and the worry and the desire. He wants to make a decision now. I just ask that you would give him clear direction.Guard against panic, guard against shame, guard against rushing into a choice that that creates more stress later. And if this debt needs attention, make that next step in his mind plain.If patience is the wiser path, Lord, give him peace in the waiting period and bless the work of rebuilding. Strengthen that discipline. Open the right doors in the right order.Lord, we just thank you so much for leading with mercy and not condemnation in our lives. And we ask this in Jesus name, Amen. Friend, I just want to leave you with this. You're not disqualified by an old mistake.And maybe right now you're sitting with old debt and you're wondering what to do. Don't guess anymore. I'd love to hear your story.You can go record a message for us by going to financiallyconfidentchristian.com/voicemail and let me walk through that situation with you. We'll put a link in the show notes, but again it's financiallyconfidentchristian.com/voicemail.I want to help you sequence this right so you can have your comeback. Well, thank you so much for joining me today. Stay financially savvy. May God bless you. Have a great day and I'll see you tomorrow on the show.