If you're considering enrolling in a debt management plan (DMP), you may be wondering how it will affect your ability to get a mortgage or refinance your current loan. The truth is, it depends on the lender and your individual circumstances. Generally speaking, however, a DMP can help improve your credit rating and make you a stronger candidate for a home loan. A DMP is an agency-managed program to consolidate payments and pay off debt.
It typically aims to settle all unsecured debts within three to five years. As part of the plan, creditors may agree to waive late fees for past arrears and lower interest rates on outstanding balances. At first, your credit rating may decline as you close accounts that are part of the debt management plan, causing you to use more of your available credit. However, as you pay off debt, your credit rating is likely to improve and so will your prospects for getting a home loan you can afford.
Before starting a DMP, it's important to understand how the process works, as well as the benefits and drawbacks. A nonprofit credit counselor can review your debt and income situation at no cost and recommend ways to improve your status. Your credit counselor may also be able to offer support or referrals to help you manage other aspects of your finances. Debt settlement, also known as debt elimination or debt relief, is a field plagued by dishonest companies that may try to get you to pay large fees before settling any of your debts. If you handle the negotiations yourself, you will save money on fees and have more flexibility than if you signed a contract for a debt management plan with a consumer credit counseling agency. In conclusion, enrolling in a DMP won't affect your current mortgage but it could help you get a mortgage later.
As you pay off debt, your credit rating is likely to improve and so will your prospects for getting a home loan you can afford. A nonprofit credit counselor can review your debt and income situation at no cost and recommend ways to improve your status.