What Happens If I Use a Credit Card While Enrolled in a Debt Management Program?

Debt management plans are effective ways for consumers to get back on track financially. Although card accounts that are included in a DMP are closed upon enrollment (and rejected when presented for payment), a borrower may still need to use credit. Usually, all debts must be included in a plan, but exceptions can be made.

How Debt Management Plans Work

In exchange for reduced interest and fees, borrowers who participate in a DMP must agree not to make further charges, and the accounts are closed. There are a couple of reasons that lenders agree to debt management plans. First, accounts are paid in full instead of settled or eliminated in a bankruptcy (and a subsequent loss is mitigated). The lender is also reducing the risk that you'll incur more debt and fall further behind. Therefore, using a card that's enrolled in a DMP will result in the transaction being denied.

Exceptions

Credit counseling agencies will want to include all of your debts in a debt management plan, including a card that's used for business purposes. However, one card may be maintained for business use; for example, if you must travel on behalf of your employer, you may be permitted to leave one account open. Also, you may not be required to include a card in a DMP if the card has a zero balance. Remember that participation in a DMP is voluntary. The National Foundation for Credit Counseling states that "for the most effective and equitable treatment of your debts, we need to include all debts in your DMP."

If You Need a Credit Card

If you absolutely must have a credit card, your only option may be to purchase a prepaid, secured card. You'll be required to pay the entirety of the credit line as a security deposit. You may also be subject to stiff annual or monthly fees, as well as interest charges if you don't pay the balance in full every month. However, they're easy to obtain and, as long as you pay the balance in full every month, offer little downside.

How to Get an Unsecured Card After a DMP

If you successfully complete a DMP, you'll be eligible to participate in a credit repair program that's provided by the agency who sponsored your plan. The creditor may be willing to re-open your credit line. If not, you can try opening a new account on your own. Capital One and Orchard Bank offer cards for people who are trying to rebuild their credit. Fair Isaac Corporation's "My FICO" website provides a great deal of information on credit scoring and rebuilding credit, as well as links to cards that fit your credit score profile. You can also order your credit reports and scores; be sure to cancel the subscription before the trial period ends.