What Does Credit Counseling and a DMP Do to My Credit Score?
Here is my situation. I am about 19k in credit card debt. I do have student loans on interest only for now. I can't seem to make any dent in any of my credit cards. I haven't been late on any of my bills, but with the possibility of our family growing soon, I would like to pay something off. My wife's car is dying and needs to be replaced within a year, so having bills consolidated on one loan type would greatly help. Having so many payments going out in one month and planning and organizing them around my weekly paychecks is depressing. Before I get a paycheck its already going to bills, and I wonder if I'll be able to put food on the table.
How much of an impact will the DMP reflect on my credit score, and if I were to be in a DMP and my wife does need to get a car with me as a co-signer, would this effect the auto loan process? Would a DMP be the best planfor me, and if there are any recommended companies I could turn to for help?
—John
It sounds like a debt management plan (DMP) working with a credit counseling service would help you set up a lower monthly payment you can afford and give you a time line you need to eliminate your credit card debts.
To be certain your income can support the credit counseling agencies DMP, work out your household expenses to see if you can afford to pay about $380.00 a month on your credit card bills. Your payment through the credit counselor may be a little lower, or a little higher. I calculated my estimate based on the current national average of about 2% of the 19k total credit card balances being your new monthly payment.
Credit counseling and a DMP do not impact your credit score in any meaningful way.
If your score drops after enrolling with a counseling agency it will be because your accounts enrolled get closed. This may drop your score a couple points per account. What will impact the ability to get credit while on a DMP wont be a lower credit score, it will be whether you can get approved for an auto loan with your debt to income ratio. In other words, will you be able to afford the new loan?
Be aware that the credit cards you enroll in the credit counseling plan may reflect as much on your credit report. Some lenders care about seeing that you are on a debt management program to repay your debt, and some don’t.
If you need a vehicle financed in the first several months of starting your DMP, it may be tough to get approved. People are approved for auto loans after successfully paying debts through credit counseling for a while. A year of payments would certainly establish your commitment to the plan. This would seem to be in line with the timing you provided you would be looking for a vehicle loan. Given the current economy, auto loans may be more accessible, even to those with a low credit score, because dealers need to move inventory.
No difference from one credit counseling DMP to the next.
State laws are pretty straight forward with how credit counseling can be done. Some states may require the counseling agency be non profit. There are currently over 100 companies offering debt management plans to people nation wide. The larger national counseling companies will be licensed to provide you a DMP in nearly all of the states.
Each agency may have some different programs that are designed to assist you with more than just lowering your monthly payments for credit cards. Some agencies provide HUD approved housing counseling, student loan borrower education designed to help you get out of default, pre/post bankruptcy counseling certificates, and more.
You can reach a credit counselor for a free consult at 888-317-8770.
Anyone with questions or concerns about their current credit card payments, and how to handle the situation while keeping an eye on their credit score and reports, is welcome to post below for feedback.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
It’s good to know that credit counseling will not impact my credit score. that is all I care about. Maybe I can get a professional to help me out.
You can call 800-939-8357 and press extension 1 to talk to a credit counselor.