Do you have unsecured debt you can’t afford to make payments on anymore? If so, you might be considering a debt management plan. This type of plan can reduce the payments you make each month so you can afford to pay off your debt.
A debt management plan is an agreement between you and your creditors that is established with the help of a debt management company. This agreement has many benefits, including reducing the amount of money you have to pay each month and lumping your multiple small bills into one easily manageable payment. In most cases, your debt management company will even be able to convince your creditors to reduce or stop interest on the debt you owe, saving you a lot of money.
However, this debt management solution isn’t perfect for everyone. For instance, if your creditors aren’t willing to freeze the interest on your debt, or at least reduce it, you may end up paying more than you owe in the long run. Also, if you don’t live up to the terms of your debt management plan, your credit score could be affected for six years, making it more difficult than before to obtain new lines of credit.
Another consequence of a debt management plan is that you might not be able to obtain a mortgage. This is especially true in our current economy, where money is tight and many banks and financial institutions are more conservative about their lending.
Obtaining a Mortgage When You are on a Debt Management Plan
While you may be doing everything you can to pay off your debt, many lenders will still consider you a ‘high risk’ if you have entered into a debt management plan. This is most often due to how your credit rating has been affected by debt. While the debt management plan can help you get back on track and actually improve your credit rating, it will still be impaired by the debt you owe and your circumstances before you entered into debt management.
If you try to obtain a mortgage while you are in debt management and your application is rejected, don’t panic. You may need to wait until you have completely paid off your debt before you apply again. Paying off your debt, even a little at a time will have a positive impact on your credit rating and once your debt management is complete, you can take additional steps to improve your score even more.
Debt Management and an Existing Mortgage
So, what happens if you already have a mortgage when you first begin a debt management plan? In most cases, you don’t have to worry about this at all. Your debt management company will make sure the payments you make to your creditors are affordable so you can still comfortably afford your mortgage payments each month.
Martin Bradley, a Harrington Brooks representative says “If you are having a difficult time paying off your debt and find yourself missing payments or thinking about serious solutions like bankruptcy, consider debt management. While it may affect your chances of obtaining a new mortgage right now, it can help you pay off your debt and improve your credit rating so you can obtain a better mortgage later on!” Read more at the Harrington Brooks website.