Most credit counselors do more than just help you get out of debt. After working out a repayment plan with your existing creditors, many offer personal assistance, tools and resources to help you learn to stay out of debt. In exchange for this assistance, you agree in writing to abide by the guidelines the agency sets. While in many cases borrowing money is not part of the deal, an exceptional situation may make borrowing money a possibility.
The Facts
Most people enroll in a debt management program for one of two reasons: They have either an income or a spending problem. Either way, they have too much debt. Because the point of a debt management program is to help you clear debt, many will drop you as a client if you borrow money, either by applying for a credit card or by taking out a loan, while you are actively paying off debt. From the perspective of a credit card company or lender, one or more notations in your credit profile that indicate a credit counseling agency is handling your credit may disqualify you as a high-risk credit applicant.
Type
Even though the agreement you sign may prohibit you from borrowing money, there may be circumstances where your counselor, as well as a lender, will make an exception. Understand, however, that this will most likely never mean getting permission to apply for a credit card. Unsecure, revolving credit is an invitation for trouble, and one you agree to avoid when signing a debt agreement. Borrowing money in the form of an installment loan is another matter. Depending on your financial situation and length of time in the program, you may be able to borrow money by applying for an installment loan such as a mortgage.
Time Frame
Before you can hope for an exception to the no-credit rule you must first prove that you are learning to be responsible with money. This means no late payments for a period of at least six to 12 months before asking permission to apply for an FHA loan and at least 18 months if you want to apply for a conventional mortgage. In addition, you will need to meet all other qualifying considerations, such as a suitable debt-to-income ratio, employment history and income requirements.
Considerations
A sure way to disqualify yourself from a debt management program is to apply for any type of credit without first talking to your counselor. If this happens, all the benefits you enjoy, such as a reduced interest rate and lower monthly payments, will end. You will then be responsible for paying the remainder of your balance according to your previous interest rate and monthly payment amount.
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