Achtung, achtung! You just got served lawsuit papers as a physician and your future at your current job may no longer be certain. You’re about to go hire a lawyer and pay a retainer of $10k. You may be taken off of your shifts without being able to use your short term disability. Your bills will continue coming in and your headaches are just beginning.
Fortunately, you will get out of this situation – eventually. Most of us do. It will be miserable, terrible, and unpredictable. Your credit score may end up taking a hit and you may have to make some severe financial cuts. The last thing you want to do is raid your retirement account or savings. Don’t blow your home equity on your financial troubles and don’t take out a loan against your 401k.
A Financial Emergency
I have so many stories I could share with you guys, from RN’s to MD’s to Podiatrists, all who have gotten sued, been fired by their employer, gotten investigation by their professional boards, and have had all of their savings wiped out. I get new stories emailed to me every week.
That’s not the worst of it. These doctors and healthcare professionals lost relationships. They lost homes. Some have resumed previous addictions. Or, even worse, they are hiding from the world; not replying to letters from investigators, not communicating with their lawyers – they have completely shut down.
During a financial emergency it’s important and necessary to go into lockdown mode. I’ve written about this topic before. It won’t be pleasant for most but it will save you a lot of headaches in the future.
Most financial emergencies will be over before you know it. The universe bands together and drops a pink cuddly unicorn into your lap. It’s rare that a career disaster will completely wipe you out. Nevertheless, many will drain their savings and retirement accounts. They’ll destroy their lives assuming the worst will happen.
Using Credit Cards During a Financial Emergency
Having access to credit cards can be a financial life saver. Credit cards offer unsecured debt. You don’t put up any collateral other than your credit score. Which, even if it drains down to 350, will eventually creep back up to that sexy 849. Using credit cards during a financial emergency is one of the best uses of unsecured debt that I can think of.
During a financial emergency you can transfer your spending onto your credit cards. Gas, utilities, car payments, groceries, health insurance, and event rent. All of these can be paid using your credit card even if that company doesn’t take plastic.
Sometimes you’ll have to eat a transaction fee to use your cards. Platiq lets you do just that. They will charge you a 2.5% fee and you pay with your credit cards where cards aren’t accepted.
Your Credit Score
As for your credit score… who gives a shit about your credit score! You are facing hefty legal bills and potentially no income for months. It’s about damage control and not preserving a credit score or keeping up appearances for the neighbors.
Your credit score will eventually recover. I’ve had a short-sale on a condo. I’ve defaulted on credit cards. I’ve written off mortgage debt. I’ve been late on payments for nearly 6 months. I’ve entered a credit repair program. Basically, anything you can imagine that’s terrible, I’ve done with my credit. It dropped down to 445 and now it’s at 830.
Credit Card Debt
In order to have access to credit card debt you need credit cards. The time to apply for them is as soon as possible before you lose your job. Start by asking banks to raise your credit limit. For a physician you should easily be able to get into the $25k range per swipe and depending on your income and business structure, $100k is quite possible.
If you don’t have a lot of credit cards then start applying for cards with the highest limits possible. Business cards might be a better option and an account rep can tell you exactly which will be ideal for you.
Capital One and Chase offer credit cards with $50,000-100,000 limits. Alternatively you can apply for 5 credit cards with $20k limits. But doing so back-to-back will spook the banks. Which is why it’s necessary to have your credit cards in place before you ever need them.
Check out Joshua’s master course on using credit cards without ever paying interest. It’s a steal at $49 and it will help you whether you’re already in a pickle or want to be ready for any potential future disaster.
Defaulting on Credit Card Debt
No consumer should intentionally plan on defaulting on debt. That’s bad karma. But if the banks are willing to lend you money then they are willing to take a gamble on you. In return they are charging you obscene interest rates and fines and annual card fees. Don’t get it twisted, they are in it to make money.
Furthermore, if you don’t pay them back in time, if you default on the debt, they will write it off as a business expense. In return they might try to sue you or ruin the shit out of your credit history.
My point is that there is a system already in place for the credit game. No need for you to worry about the ethical factors. Transfer your daily expenses on the card, make the minimum payments, and sort your shit out so that you can get back on your feet and pay down the debt.
Sued by the Bank
Even if you’re not able to pay back the debt, most banks will continue to try to work with you. As long as you pay a little bit, as long as you stay in touch with the banks, they will continue to work with you. Don’t ghost them or else they’ll sell the debt off to some nasty ass debt collector and that’s when it gets ugly.
Remember that you can always settle your debt with a creditor without having to deal with the nasty suits. Be debt savvy and you’ll avert any debt troubles.
The point of using credit cards isn’t to just dump your spending on your card. Though you could do that, it will make your life hell when you go to pay all of that money back.
Be debt savvy and cut back spending as much as possible:
- don’t heat your indoor swimming pool
- return the leased Tesla or sell it to the drug dealer down the street
- cancel your $250/month gym membership
- skip the massage and waxing sessions
- don’t dine out with your friends for that $160 sushi meal
- skip the $19.50 bottle of wine
- cancel subscriptions and memberships
- rent out the spare bedroom or cook meth in it
Being debt savvy means that you’ll use debt to your advantage. But you won’t add an unnecessary debt burden to your financial life. After all, the goal is to pay this debt back in the near future.
What if you had a vacation planned and already bought the airline tickets worth $3,000?
What if you are in the process of closing on a home or having your dream home built on Pill Hill?
Or you already paid a $10k deposit to have your backyard turned into a tropical oasis. What do you do? You ask yourself whether knowing what you know now, being in this financial disaster, would you make this purchase? If the answer is no – and I hope to dog it’s a no – then you don’t spend any more money.
You already lost the money on the airline tickets, don’t go booking the hotel. Don’t complete the 8,000 sqft home. You already lost the deposit on Aladdin’s backyard retreat, don’t spend any more money. Stop the hemorrhaging to give yourself some peace of mind, some space.
Credit Card Churning
Here is how you churn them cards to handle your financial emergency. After you cut out your weekly facials and your monthly massage, you transfer all your spending onto your credit cards. You can do this manually for each budget item (rent, subscriptions, mortgage, insurance) or do it through Plastiq or other similar services.
After the first month you’ll start having payments which may be sizeable, $500/month. Don’t pay for these out of pocket. Right now your cash needs to go into an emergency fund and towards more important bills like legal expenses. Instead use one credit card to make payments on the next card.
Some banks won’t allow this. In which case you can always make the minimum payment using your checking account. I would even consider applying for a personal line of credit through Lending Club or SunTrust.
The point is to churn through unsecured debt and leave alone any secured debt (home equity, business line of credit) or cash. You can keep this charade up for nearly a year before you’ll have to answer to the banks. In which case they might put a hold on your credit cards or lower your line of credit. Big deal.