Can I get a credit card while on a debt management plan?

Credit cards are notorious for tempting individuals into spending more than they can afford, leading to the accumulation of debt. That being said, if used wisely, they can be a helpful tool for building credit.

If you are on a credit card Debt Management Plan (DMP), you may be wondering whether you can get a new card or continue to use your old ones. In some cases, the answer may be yes; however, it’s essential to understand the potential consequences, and how your spending may impact your DMP.

Understanding debt management plans

A debt management plan (DMP) is an informal, structured strategy designed to help individuals repay their non-priority debts, such as credit cards.

By collaborating with a DMP provider, you could consolidate your monthly payments into a single, more manageable sum. Your provider will negotiate with your creditors to potentially reduce your interest rates or waive certain fees. You’ll then make one monthly payment, which is split between each of your creditors.

The primary benefit of a debt management plan is its ability to relieve the pressure of multiple payments, offering a clearer path towards financial stability. However, it may not be the right path for everyone, so it’s important to consider the implications carefully.

What happens to your credit cards on a DMP?

Starting a debt management plan (DMP) means making some sacrifices, and one of the most immediate impacts is on your credit cards.

If your DMP encompasses any of your credit card accounts, they will typically be closed. This closure is often a condition set by creditors in exchange for reducing your interest rate. By doing so, it can pave the way for more manageable monthly payments and a quicker route out of debt.

Once your credit cards are closed, you’ll no longer be able to use them, though you’ll have to continue paying off any existing debt.

Credit cards that are not included in your DMP

But what about credit cards that aren’t part of your debt management plan? Some DMP providers might permit you to keep an “emergency” credit card active, provided it carries no outstanding debt.

However, caution is the watchword here. While you can continue using credit cards that aren’t in your DMP, it may not be the best decision. If you are not careful, you could end up accumulating more debt. This added financial burden could strain your budget and make it challenging to meet your monthly DMP obligations. So, it’s vital to assess the potential long-term repercussions against the immediate benefits.

Can you get a new credit card on a debt management plan?

While on a debt management plan (DMP), you are technically free to take out a new credit card – though you may find it harder to be approved for one.

When you apply for credit, lenders typically conduct a thorough check on your credit report. They will use this to assess your ability to use the card responsibly and make regular repayments.

Though your DMP itself won’t automatically appear on your credit report, your creditors might make a note on your account about your new payment plan. Seeing that you’re on a DMP and/ or that you are not making contractual payments to your debts might cause the lender to see you as a financial risk, as it suggests you’ve had difficulty managing your non-priority debts in the past. If so, they may reject your application.

You should also be aware that some creditors in a DMP may reject repayment offers if they become aware that you are applying for a new line of credit.

Is it a good idea to use a credit card while on a DMP?

You might consider using a credit card on a debt management plan if you’re looking for a way to help rebuild your credit. Consistently repaying your credit card debt in full, every month, can improve your score and indicate financial responsibility to future lenders. However, there are several potential pitfalls to consider.

01. The temptation to spend

Credit cards have a reputation for tempting people into debt. If you’ve historically found it challenging to resist the allure of easy credit, reintroducing a credit card into your life can be a slippery slope.

The convenience of a credit card might tempt you to spend beyond your means, leading to further debt. It’s crucial to introspect and assess whether you can trust yourself to spend responsibly.

02. The impact on your credit score

While being on a DMP doesn’t directly affect your credit score, the actions you take during your plan can. Credit cards are only useful for building credit if you use them responsibly and repay what you’ve borrowed each month in full.

If you decide to use a credit card and fail to pay off the full monthly balance, interest will accrue. Your debt balance and any arrears may be reported to credit bureaus, potentially lowering your score. This could make it even more difficult to borrow money in future (e.g. a mortgage application) or even being approved for a line of credit such as a new mobile phone contract.

03. The hassle of multiple repayments

One of the primary benefits of a DMP is the consolidation of your non-priority debts into a single, manageable monthly payment. Introducing credit card payments back into the mix can complicate this streamlined process and negate the benefits of setting up your plan in the first place. You’ll need to start juggling multiple payments again, which can become overwhelming and increase the risk of missed payments.

04. Maintaining relationships with your creditors

Your relationship with your creditors is delicate during a DMP. They’ve essentially agreed to a modified payment plan, potentially with reduced interest, to facilitate the repayment of your debt.

Taking on additional credit could signal to them that you are overextending yourself financially. They may ask that you close any new credit cards if they feel they may hinder your ability to make monthly repayments.

It’s crucial to remember that a DMP is an informal agreement, not a legally binding one. It’s always in your best interest to demonstrate commitment to your DMP and avoid actions that might jeopardise your standing with creditors. If they view you as a financial risk, they are free to pursue the debt through alternative means, including legal action.

Interested in debt management plans? Contact DFH Financial Solutions today!

Navigating the complexities of debt can be overwhelming. If you’re considering a Debt Management Plan, it’s essential to seek personalised guidance.

As a leading debt management plan provider, DFH Financial Solutions is dedicated to helping those struggling with debt throughout the UK. Our team of experts is here to offer tailored advice and match you with the perfect debt solution.

Apply online for free initial debt advice and more information on how we can help. Don’t wait: Let DFH help kick-start your financial journey today.