One of the most popular questions we receive is: ‘can I get credit or finance on a debt management plan?’ In our latest blog, we answer the question in more detail.
What is a Debt Management Plan (DMP)?
A debt management plan is an informal arrangement with your creditors where you agree to make one affordable monthly payment to your debts. We assist you with this by working out a budget with you which includes all of your essential household expenses, such as your rent, mortgage, utilities and food shopping. The money that is left over will be used to pay the people that you owe money to (your creditors). This is called your ‘disposable income’. It’s a confidential way of dealing with your debts, none of your friends, family or colleagues need to know. Creditors will usually agree to freeze interest and charges on your debts too.
Budgeting Your Income
When you’re on a debt management plan, we create a budget where your money will be assigned to various categories and anything that is left will go to your debts. So, it’s particularly important to be aware of how much you can afford when you are thinking about taking out further credit or finance.
Can I Get Finance or Credit While on a Debt Management Plan (DMP)?
Although you may be able to take out another form of credit or finance during a debt management plan, it isn’t a good idea and isn’t something we would recommend. Payday loan companies in particular tend to charge extremely high rates of interest, so it’s best to avoid them whether you have a DMP or not.
Other lenders will also offer high rates of interest, or not offer you credit at all if they know you are on a debt management plan. Remember, it will be harder for you to get finance and credit. So, if you’re struggling to manage your finances when you are on a debt management plan, you should get up to date debt advice before taking out more credit.
Why Will it be Harder to Get Finance or Credit?
A debt management plan affects your credit file. Most mainstream banks and lenders will be reluctant to lend to you once they see your credit file and they know you are on a debt management plan. The plan works by you making reduced payments, so defaults will appear on your credit file.
Can I Get a Car Loan During a Debt Management Plan?
Things can change while you’re on a debt management plan. If you need to replace your car or buy a new one during your debt management plan, you may be considering a loan. Before taking out any kind of finance or credit, contact us to talk through your budget first. We will work with you to make sure it’s realistic and affordable. We need to make sure that there is room in your budget to cover all the costs involved in running a car including:
- Fuel
- Insurance
- Road tax
- MOT
- Servicing/repairs
- Breakdown cover
Struggling With Debt While You’re on a Debt Management Plan?
If you’re on a debt management plan but are thinking about taking out more credit or there’s no money left at the end of the month, you may need updated debt advice to ensure the debt management plan is still working for you. You can speak to our expert debt advisors, or get debt advice using our online tool any time, day or night.
