Can I borrow more if I am in a Debt Management Plan?
If you have already started a Debt Management Plan (DMP) 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 your Plan is not a legally binding agreement there is no legal reason why you cannot try to borrow more while you are in the arrangement. However there are various problems that you will come up against.
Can I take a new loan during a Debt Management plan?
Once you start a DMP 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 therefore likely to reject your application. 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 your Plan.
BMD Tip: The significant downside of using Payday lenders is the high interest that they will charge on the money you borrow. Taking an additional loan like this could also put your ability to maintain your Plan payments at risk.
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Can I apply for a mobile phone or car loan during 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. It will be perfectly acceptable to stay with your current mobile phone provider. However if you want to change networks you will normally have to take a pay as you go phone.
Borrowing money to buy a new car is also possible while you are in your Plan but you will have consider a hire purchase agreement with a lender who is willing to work with people with poor credit ratings.
The downside of using this type of car finance provider is the rates of interest that they will charge which will normally be very high. 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 payments.
What are the alternatives to borrowing more while in a DMP?
A good tip when you start a DMP 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 Plan and a financial emergency crops up the best advice is ask your creditors for a payment break. Your debt management company can do this on your behalf if you are using one.
If the reason you require a 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 allow you to have one. This would mean that you could suspend your 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 Plan 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 Plan payments. The result will be that you get into even more difficulty.
For this reason always think very hard before attempting to borrow more and never do so without first taking further debt advice.
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