Rates and products offered may differ from state to state. To see the rate and offering available to you, please select the state where you bank. (Your privacy is important to us—see our Privacy Notice)
For people struggling with debt, the Consumer Credit Counseling Service (CCCS) is a viable and legitimate solution that shouldn’t be mistaken for one those debt consolidation or settlement companies that advertise on late night TV. It is a true non-profit that charges minimal fees and provides real advocacy services for debt-stricken people looking for a way out of their nightmare. They don’t make any unrealistic promises or claims and they require that you shoulder the responsibility of following a debt management plan. The question that arises for many people who agree to a debt management plan (DMP) is whether it adversely affects their credit score and their ability to get credit.
With a DMP Your Credit has no Place to Go but Up
For most debtors, a DMP offers the only possible light at the end of a long, dark tunnel. The reason you even consider a DMP is because your debt situation has become unmanageable. You are probably making minimum payments in trying to keep up with balances that are exploding due to increasing interest rates, and you find yourself juggling debt payments with other budget needs maybe having to skip one occasionally. Your credit score has already fallen to sub-prime levels, and at your current pace, it will continue to plunge.
The DMP offered through CCCS works primarily because your commitment to not add more credit during the payment period enables CCCS to negotiate lower interest rates with your creditors. What had been 19% to 29% rates are typically reduced to below 8%, sometimes as low as 2% (some creditors may go to 0%). It is highly unlikely that you could negotiate those rates on your own. So, the single monthly payment you make to CCCS goes to pay down all of your debt at a pace three or five times faster than you could do on your own.
If you try to pursue more credit, you are breaking your agreement with CCCS, and you are denying the fact that your inability to manage your credit got you in this mess in the first place. CCCS works with you to develop a reasonable budget that enables you to live within your means on your existing cash flow. The DMP will likely reduce your monthly debt payment obligation by a third or more which should free up enough cash to pay off your debt completely. Any desire to add more credit most likely means you are ignoring the lessons of your past.
Yes, You Can Still Get Credit After a DMP
With all of that said, agreeing to a DMP may or may not have a negative effect on your credit. When you work with CCCS, it is reported on your credit report that you are making payments through a credit counseling organization. That in of itself is not likely to hurt your score. However, a lender who pulls your credit report and sees that you are participating in a DMP could see that as a red flag. Conversely, it could be viewed as a positive in that you are taking proactive steps to gain control of your credit. You are not likely to get any positive consideration from a lender until your balances have been paid down to at less than 25% of your available credit limit.
The best course is to finish the debt management plan before considering any new debt. At that point, you may be in a position where you don’t need additional credit. If you do obtain a new credit card during your DMP, it is vital that you use it sparingly and pay your balance in full each month. In doing so, you will gradually rebuild a positive credit history and your score will improve. But, above all else, it is imperative that you remember the lessons of the past.