Will a DMP Affect my Credit Rating?

Understanding the credit impact of enrolling in a debt management plan.

Dear Jeff,

Does this program negatively affect your credit score and, if so, how? I am not sure I want to go this route or try to get out of debt on my own. I’d prefer getting a personal loan for $10,000, but I cannot obtain one for less than a 28% interest rate and I can’t afford the $400 payment. I’m looking for a payment around $300 but if possible, I don’t want to damage my credit.

Candise
Toronto, Ontario

Learn more about a debt management program

Hi Candise,

I’m glad you’re working to find a solution for your debt, but unfortunately, I have to break it to you that you may not be able to get everything you want. You may need to prioritize your goals as you get out of debt, so you can choose the best solution.

If you can’t get out of debt on your own and need professional support, then you should expect to face at least some credit score damage. This includes enrolling in a debt management program through a credit counselling agency.

How debt management affects your credit

When you enroll in a debt management plan, it will be noted on your credit report that the debts are being paid back on an adjusted payment schedule. The notation remains on your report for two years from the date you graduate from the program.

This type of notation will negatively affect your credit score, but the “weight” of the impact depends on your credit profile going in, and will decrease over time. Then after the two years are up, the notation will drop off and your credit should bounce back, unless you have other negative items, such as debt collection accounts still weighing down your score.

How the credit impact compares to other solutions

It’s worth mentioning that the notation for a DMP is the same notation for debt settlement and consumer proposals. It shows that you’re paying the debt back on a different schedule than what you originally agreed to with the creditor. However, if you settle a debt for less than you owe or use a consumer proposal, the notation remains for three years after you finish up to a maximum of eight, rather than two.

So, the impact of a debt management plan will remain for a shorter time, but it will still negatively impact your score for that time period. However, you mentioned that you wouldn’t be able to afford the payments on a consolidation loan.

If that’s the case, then even though debt consolidation doesn’t negatively impact your credit, any missed payments would. Missed payments remain on your credit for six years from the date the payment was missed. So, even one missed payment would impact your credit longer than a DMP. If you don’t think you can afford the consolidation loan, then it could end up being worse for your credit than getting professional help.

Talk to a trained credit counsellor to decide what’s right for you

I recommend calling us for a free debt and credit evaluation with a trained credit counsellor. A counsellor can help you assess your situation to choose the best solution based on your needs and goals.

I hope this information can help you make an informed decision and let us know if you have any questions.