A Debt Management Plan (DMP) is a formal agreement between you and your creditors to help you pay off your debt. To create your plan, you will need to declare how much debt you’re in and how long you’ve been in debt. This will allow your creditor to get an idea of what situation you are in and how severe it is.
You will then need to supply some financial documents so that they can back up your income and take a look at your expenditures. This will help them to take a closer look at your spending habits and see whether you can cut back on anything.
The next step is to issue you with a DMP that is tailored to you and your financial situation. Once you start your DMP, you will begin receiving monthly payments at a reduced and more affordable rate in order to pay off your accumulated debt over time.
Throughout this article, we are going to look at how a DMP can benefit you and your mortgage in Grimsby.
A DMP could help you build back up your credit. If you have a poor credit score at the time of starting your DMP, meeting your new monthly payments and slowly paying off your debt can have a gradual positive effect. If you think of it as that you’re clearing debt from your name and are meeting recurring payments each month, you can see why it can help you a little bit.
A higher credit score could potentially open you up to slightly better mortgage products. On the other hand, you will still need to put down a higher deposit as you’re on a DMP and lenders may see you as a potential risk.
If you come up with a DMP before receiving a default or a CCJ, you may be able to avoid them if you act quick enough and accumulate what you owe into a DMP. Once you are issued with a default or a CCJ, it won’t be cleared from your file for 6 years, regardless of whether you’ve paid off the debt or not.
Having a default that is in your name can have an adverse effect on your credit score. As a Mortgage Broker in Grimsby, we would highly recommend avoiding a default if it is possible.
If you speak with a Specialist Mortgage Advisor in Grimsby, they may be able to point you in the right direction to get your DMP together. When lenders see a default or a CCJ on your file, they will question it straight away and may not lend to you because of it.
If you’ve got a default, you may be able to incorporate the amount owed into your DMP. Remember, this doesn’t mean that the default will go away, it will still appear on your credit file.
A DMP can help you sort your finances and could get you back on track to where you need to be. It’s always recommended that you take a look at your finances during the build-up to your mortgage application anyway; reorganising a couple of things here and there could massively benefit you in some cases.
For example, in this situation, you could cut back on gambling to make sure that you’re portraying yourself as a reliable and responsible applicant. If you’re on a DMP and are spending large sums of money gambling, it will negatively affect your chances of getting a mortgage.
In other scenarios, we’ve seen some applicants incorporate some of their owed debt into their mortgage through debt consolidation. Your overall mortgage amount will increase, but you’ll be ensuring that your unsecured debt becomes secured against an asset.
Debt consolidation is a very specialist subject, and you may require a Mortgage Advisor in Grimsby to help you through the process. We always recommend that you seek advice before consolidating your debt into your mortgage.
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