If you are already in a Debt Management Plan we consider whether you can borrow more money and what the alternatives to borrowing more might be.
If you have already started a DMP (Debt Management Plan) it is because you cannot afford to repay the money that you owe. In these circumstances it is not advisable to try and borrow more.
However there may be a time when you are facing a financial emergency and need extra cash quickly. Alternatively you might be considering a new mobile phone contract or even a car on HP.
Because a DMP is not a legally binding agreement there is no legal reason why you cannot borrow more while in this type of arrangement. However there are various problems that you will come up against.
Poor credit rating will prevent borrowing while in a DMP
Once you start a debt management plan your credit rating will be negatively affected. This is because your creditors will issue late payment and default notices against you which will be recorded on your credit file.
If you approach any mainstream high street bank and ask to borrow money or open a new line of credit, they are likely to reject your application because of your poor credit rating.
However there are other legitimate companies that you could apply to borrow money from. The most widely known of these are door step lenders such as Provident and Payday loan companies such as Wonga.
These organisations specialise in lending small cash loans to people who may have poor credit ratings and so you probably will be able to borrow from these types of lenders even though you are in a debt management plan. However the significant downside of using these lenders is the high interest that they will charge.
Applying for a mobile phone or car loan in a DMP
While you are in a debt management plan, you may consider borrowing in a way that does not involve taking a cash loan. Examples of this include applying for a new contract mobile phone with a different operator or even applying for car finance.
Again, because your credit rating is poor, it is very unlikely that you will be able to move to a new mobile phone network provider and take a contract with them.
Borrowing money to buy a new car is also possible while you are in a debt management plan but you will have consider a hire purchase agreement with a lender who is willing to work with people with poor credit ratings.
Of course as with payday lenders the downside of using this type of car finance provider is the rates of interest that they will charge which will normally be far higher than a standard lender would offer.
Before taking this type of finance, you must therefore make sure that the monthly payments are affordable and that you will still be able to maintain your debt management plan payments.
Alternatives to borrowing more while in a DMP
A good tip when you start a debt management plan is to try and save a small amount from your monthly living expenditure budget each month and put this aside for a rainy day.
If a financial emergency does come up, the savings you have built up will help and reduce the need to borrow more.
Alternatively if you have not been able to save any money during your DMP and a financial emergency crops up, the best advice is speak to your creditors or your debt management company and ask for a payment break.
If the reason you require the payment break is legitimate such as an emergency car repair without which you will not be able to get to work, then your creditors will very often be reasonable.
They may well allow you to suspend your debt management payments for 2-3 months to allow you to pay for the emergency.
Borrowing while in a DMP could result in bigger debt problems
Ultimately if you are in a debt management plan it is not advisable to borrow more money.
Generally speaking, people who do borrow more while already in a DMP find themselves with even greater debt problems.
If you do borrow more you may well struggle to pay the new repayments as well as your monthly DMP payments. The result will be that you get into even more difficulty.
For this reason always think very hard before attempting to borrow more while in a debt management plan and never do so without first taking further debt advice.
Arrange a call with a DMP Expert