How Does a Debt Management Plan Affect Your Credit Rating ?
Making use of a debt management plan
is one of the many debt solutions which could really help you become debt free and regain control of your finances.
There are numerous benefits of using a debt management plan over other options, such as the ability to make lower monthly payments and in many cases get interest and charges on your debt frozen.
Why is My Credit Rating Affected?
When you are using a DMP you are making lower payments than initially agreed - you'll be asking your creditors to accept less money each month. This in effect means that you are not sticking to the original terms of your loan/credit card and therefore missing payments. Because of this, this will be recorded on your credit history.
Any records which are made on your credit rating will remain in place for six years, meaning that you will find it difficult to get credit in the future.
Should I Be Concerned About a Poor Credit Rating?
It’s true that having a poor credit rating is not desirable. However, if you have an unmanageable amount of debt then it can also be said that dealing with this problem is important too. Any debt solution which involves reducing your repayments will affect your credit rating and a debt management plan is generally seen as more flexible approach then debt solutions such as IVAs which have rigid repayment terms.
In many cases, clients who seek debt management plans will often have a poor credit rating if they are currently missing payments on loans and credit cards. Your priority should be to become debt free first before being concerned about your credit rating. Accepting that your credit rating will be affected and concentrating on getting your debt problems dealt is a great place to start.