Wrong encrypted password (I can't rember ever setting an encrypted password), does it mean I just lost 5 years of contacts?

Couple of hours ago, I've installed iTunes because I realized that I haven't backed up my phone yet on a new computer. I log in using my Apple ID and am prompted to backup and then update software. I did exactly that, but iPhone didn't update successfully and I was prompted to restore it to factory setting.

I then tried to restore from a backup and turns out that I've set a password some time ago when I backed up but I don't remember it now.

Turns out I didn't back up to Cloud either. I have this backup file on my computer that contains years of photos and contacts and now it's gone?

Are there possibilities of recovering it? Can third party software help me with this?