A debt management plan is a simple financial solution for those who need to lower their monthly repayments. By using a debt management firm, or engaging in self-led debt management, you can negotiate lower monthly repayments with your creditors, and freeze the interest on your loans. By doing this, you make paying them easier, and can improve your credit score. If you choose to act through a debt management company, you may be able to make one monthly payment to them, which they will then distribute to all of your creditors. This is one of the most convenient ways to reduce your debts, and is ideal for those who have found their debts are out of control.
The majority of companies are interested in ensuring you uphold your new financial agreement. As they act on your behalf, they will want to ensure you remain financially wise. While some companies may not allow you to take out a mortgage until you have finished your payments, others will.
How A Debt Management Plan Will Impact Your Credit Rating
Although you entering into a debt management plan will be noted on your credit report, it will not affect your credit score. Once you have entered into a plan, you can see it on your credit report by obtaining your free annual copy. If you meet the terms of your
plan, there are several ways it can help improve your score:
* The biggest factor taken into account by FICO when calculating your credit score is your repayment history. The more repayments you meet, the better your credit score will be. If the plan helps you meet your payments, it will help you improve your score.
* FICO also looks at how much you owe various lenders when calculating your credit score. For each debt management payment you make, you will owe your lenders a little less. This will look better on your credit file.
It is important to bear in mind that the plan will prevent you from accessing a diverse range of credit while you are still in it. This is particularly the case if you have had to close your old credit off, and are faced with making payments for credit you no longer use.
Can You Apply For A Mortgage While Under A Debt Management Plan?
Some companies may permit you to, others may not. Ultimately, your mortgage application will depend on what each individual lender sees on your credit file. While some may be turned off by the idea of lending to someone with a debt management plan, others may see it as a financially wise decision, particularly if you have been meeting the terms of it for an extended period of time. If a debt management plan has helped you rebuild your credit in other ways, it will increase the likelihood that a financial institution will give you a mortgage.
Even if a debt management plan hinders you from getting a mortgage in the present, the financial benefits it comes with may increase your chances of taking one out in the future.
Get your Free Debt Advice and learn how to manage your debt.