When people discuss a debt management plan (DMP) with a professional, they often ask how their credit rating will be affected. Many consumers wait a long time to get debt advice because they do not want to lower their credit rating. The truth is that if a DMP has become a consideration, credit rating should be a minor concern.
Usually most people who require a debt management plan are already struggling or missing payments to creditors and have an adverse credit rating. Lots of people think it is important to protect their credit rating by using credit to fund credit and not missing payments but are robbing Peter to pay Paul and getting further into debt.
⏱ Get A Free No Obligation Debt Assessment:
Please fill out this form and we will get in touch with you shortly.
The ability to get a mortgage, mobile phone, credit card, loan, or rent a home is influenced by the credit rating
Therefore, it is understandable that people would want to keep their credit rating from declining. Some consumers contribute such a large amount of their income to repaying the debt that they require credit to pay for food, transportation, and housing costs. However, establishing a DMP, which can negatively impact credit rating, does not seem attractive.
Even experts say that credit ratings are not as important as most consumers believe. For example, even if the credit rating is excellent, an lender may not offer a loan due to mounting debts. Lenders must practice responsible lending or face consequences. Some consumers take as much credit as they can before considering a DMP. Once no more credit is available, the consumer is faced with missing repayments.
When the credit rating declines, people are not affected as much as they believe they will be
They should experience no issues if they maintain the mortgage, mobile phone, and utility bill payments. People should be able to continue these arrangements on the terms already established. Though it may be difficult to obtain a new mortgage, a consumer on a DMP may be able to rent a property privately. Some consumers even rent privately during an IVA or bankruptcy.
A DMP also does not prevent an individual from accessing cash quickly
The plan should include a budget for emergency expenses like car maintenance and repairs. If the car breaks down, there will be no need to reach for a credit card. Extra money put away during prior months can be used to pay for the services. The same holds true for home repair expenses. If they do not have enough money saved, some consumers on DMPs even miss one or two plan payments to cover emergency expenses.
Anyone who cannot afford debt repayments and other expenses without using additional credit is already facing a reduction in the ability to obtain additional credit in the future. Struggling along just to protect the credit rating a bit longer will most likely increase the level of debt. This will take longer to repay using a DMP and could eventually require a formal insolvency process.
If debts are mounting, even a good credit rating may not open doors to additional credit. On the other hand, even if the DMP damages their credit rating, consumers will most likely be able to pay for what they need. Emergency funds or DMP suspension can be used to pay for emergency expenses. The desire for a good credit rating should never override taking action to deal with serious debts.