Does a debt management plan affect your credit score

If you’ve arrived here looking for a simple answer as to whether a Debt Management Plan will affect your credit score, the answer is – yes, it will. That’s the short answer, the long answer is slightly more complicated. Allow us to explain, this is EXACTLY what happens to your credit score when you use a Debt Management Plan…

 

Debt Management Plans – An overview

Debt Management Plans are an informal agreement between yourself and your creditors. They’re used as a form of debt consolidation when an individual has reached a stage where they can no longer afford their debt repayments.

Debt Management Plans don’t run for any fixed period, instead they last for as long as it takes you to repay your debts. This makes them suitable for debt consolidation involving any amount of debt.

 

How your DMP will affect your credit score

Most people who are looking at debt consolidation would prefer to pay off their debts with a personal loan, as this debt solution won’t negatively impact their credit score – indeed, a personal loan with a single monthly repayment may even improve their rating. However, for those considering a Debt Management Plan for their debt consolidation, there are often few choices left available to them.

A Debt Management Plan (DMP) won’t directly be recorded on your credit file, as it isn’t a form of insolvency. Instead, it will show up in the form of missed and reduced repayments, which will stay on your credit report for six years from the point that they occur they (e.g. when you missed your DMP repayments).

As a Debt Management Plan involves lower repayments, your debts will take longer to pay off than if you were to pay them normally. This can also negatively impact on your credit record. However, should your circumstances improve you have the freedom to repay your DMP early.

You should also bear in mind that any debts you’ve missed payments or defaulted on prior to the DMP will also impact your credit report.

 

Your Debt Management Plan – The light at the end of the tunnel

Despite Debt Management Plans having serious consequences for your credit score, the important point is that they are a means to an end for repaying your debts and getting back in the black. What’s more, no matter how damaged your credit history, there are always things you can do to repair it. Even those who’ve been declared bankrupt can one day achieve a good credit score. Read our blog to find out more: top Factors that affect your credit score.

 

Summarising this guide – a Debt Management Plan will impact your credit score. However those who use this debt consolidation solution are already deeply in debt and likely behaving in ways that is damaging their credit rating month in, month out.

Late payments, skipped repayments, rolling loan after loan after loan – all these things can lead to a dire credit report.

However with all that said, a Debt Management Plan may not be the best debt solution for your needs in any event. An IVA is a similar debt consolidation solution, but offers several advantages that a Debt Management Plan doesn’t.

To talk about your options with a debt expert, call the National Debt Help team on 0800 002 9051. You can also use our contact page and we’ll call you back.

 

 

 

 

*An Individual Voluntary Arrangement (‘IVA’) is subject to the customer meeting qualifying criteria and gaining creditor acceptance. Monthly IVA payments include fees and may differ to the example provided, based on the assessment made of your own personal circumstances – these fees will be clearly explained to you in writing by your IVA company. Debt write off amounts are subject to creditor acceptance and vary by individual customer based on their own financial circumstances, and are applied upon successful IVA completion.

Substantiation example, Someone owes £60,000, they pay £100 over 60 months which equals £6000, write off amount would be £54,000 which is 90% of total debt level. Upon submitting your details on this website we will pass your details to one of our approved partners as this website does not give any advice.

Free debt counseling, debt adjusting and credit information services are available from the Money Advice Service.

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