One of the solutions you will probably be considering if you are struggling with your debts is a Debt Management Plan (DMP). However if at the same time you also need to move home you should think very carefully about when you start your Plan.
The main reason for this is that although it is an informal debt solution the Plan will have a negative impact on your credit rating making it poor probably for at least 6 years. This is because your late payments and any default notices issued by your creditors will be recorded on your credit file.
Your poor credit rating will have a significant effect on your ability to move home whether you are planning to rent or buy. We will explain why this is and so help you understand whether or not moving first could be your best option.
Should delay my DMP if I want to move to a new private rented property?
If you are planning to move to a new privately rented property it is generally advisable to do this before your start a DMP and your credit rating becomes poor.
Unless you are renting from a friend you will normally have to go through a letting agent who will want to run a credit check against you. If your credit rating is bad you will almost certainly fail this check and the letting agent will be reluctant to deal with you.
For this reason you will have a considerable advantage if you can delay the start of your Plan and maintain a good credit rating until after you have found a new property to rent and passed the necessary credit check.
BMD Tip: If you are planning to move to a Council or Housing Association property the fact that you have a poor credit rating will not be an issue and so in this situation it will not normally make a difference whether you start a DMP before or after you move.
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Should I delay my DMP if I want to buy a new home?
If you are planning to buy a new home it is certainly advisable to do this before you start your DMP and your credit rating is negatively affected. The main reason for this is that if you already have a poor credit rating this will make getting a new mortgage almost impossible in the current mortgage climate.
If at all possible you should secure your new mortgage and move into your new property first as long as you are able to comfortably meet the monthly mortgage payments.
In fact if you are struggling with your unsecured debts starting a DMP after you have moved could be an ideal solution for you. Doing things this way round should help you keep up your new mortgage payments as these will form part of your living expenses allowances while your other debt payments will be included in your plan and reduced.
BMD Tip: If you are already a home owner and you are not planning to move but you know that you are coming to the end of your current mortgage deal then you should organise a new deal with your mortgage lender before starting a DMP.
Once your credit rating becomes poor it is likely that you will not be eligible for any other mortgage deals your lender or any other lender is offering. This does not mean that you will be forced to sell but you will have to move to your current lender’s Standard Variable Rate (SVR).
What if I have not yet started a DMP but my credit rating is already poor?
If you are currently behind with your debt payments then it is likely that your credit rating is already poor. Starting a DMP will normally not make this situation much worse.
For this reason if your credit rating is already poor there is really no point in delaying the start of your Plan. In fact by starting straight away you will be able to get your debts and finances under control and better understand what you can actually afford to pay towards your rent or mortgage.
If you are looking to rent a new home one way of overcoming the issue of your poor credit rating is to find a third party who is willing to act as a guarantor for your rent.
However if you are looking to buy there is really little point in trying to get a new mortgage it is likely you will be refused by every mortgage lender. It would therefore be best for you to wait until your debts are paid or settled in full and your credit rating has started to improve.
BMD Tip: If you have access to some cash which you were considering using for a mortgage deposit it might be better to put your thoughts of buying a property on the back burner and instead use this money to settle your debt so that your DMP is paid sooner.
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