Debt management programs are effective tools in helping people get out of debt, but they also restrict people from obtaining new credit. The rules about what you can apply for and when you can apply for them can be quite confusing. This is especially true if you're on a debt management program and you want to buy a new car.
Debt Management Programs
Signing up for a debt management program is both a blessing and a curse. The good part about these programs is that you get huge interest rate reductions, allowing you to pay down your debt in a fraction of the time it would take you otherwise. The downside is that all of your credit cards will be closed and you will be unable to apply for any new cards while on the program. In addition, your status on the program will be reflected on your credit report.
Impact on Credit
Though your enrollment in a debt management program is reported by those creditors you're paying through the program, the debt management program itself doesn't have any impact on your credit score. The extent to which your credit is affected by your debt management program is determined by how long you've been on the program and how damaged your credit was before you joined. If you've been on the program for a while, you should have a nice history of on-time payments, which will help your score significantly. On the other hand, if you just joined and had credit problems recently, this will reflect badly on your worthiness to secure a car loan.
Buying a Car
There is nothing about a debt management program that restricts you from buying a new car. However, if your credit score is borderline, the financing company may notice your status on a debt management program and consider it as a negative. In this case, you may benefit from giving a higher down payment so that you don't have to finance as much. No matter how much you put down, it's likely that the dealership or finance company will try to use your debt management program against you in an attempt to make more money off of you. (See Reference 2)
Managing Your Payments
Buying a new car is sure to add hundreds to your monthly expenses. Before you agree to anything, make sure you can handle the additional hit to your monthly budget. Missing a payment on either your car loan or your debt management program can have serious consequences. Your creditors will likely drop you from your debt management program if you miss just one payment, whereas an auto finance company can legally repossess your car if it's even one day past due. This is another instance where a bigger down payment can benefit you, as it'll make your monthly payments more manageable.
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