How to Obtain a Loan While in a Debt Agreement

It can be challenging to obtain loans while in a debt agreement plan.

Seventy-seven percent of American households in 2007 were responsible for such debts as mortgages, installment loans and credit cards, and the amount of personal debt per household has continued to climb over the years, according to statistics provided by the United States Census Bureau. Many people have turned to debt management programs or filed for bankruptcy to get a handle on overwhelming debt. Once a person enters a debt management agreement, it can be challenging to obtain more credit. However, it is possible to obtain a loan for the purchase of a car, home or other asset, provided the right circumstances are met.

Instructions

1. Take some time to improve your finances. When you first enter a debt management plan, whether it be credit counseling or personal bankruptcy, your credit is most likely rated poor to fair. Note your credit score from the time when you entered your debt agreement. Make consistent payments on all debt as scheduled for at least six months. Order a copy of your credit report and credit score from one of the three major credit reporting agencies and verify whether your score has improved. A score of 700 or above will allow a person to easily obtain new credit, according to Experian.com. A score between 600 and 700 is generally considered good. Continue making consistent payments on debt until your score is 600 or higher. The higher your credit score, the better your chances of getting a loan.

2. Save funds for a down payment. Depending upon the nature of the loan you are trying to obtain -- auto, mortgage or personal loan -- a down payment of 5 percent or more of the total loan amount will increase your chances of being approved by most lenders. Sell unused items in a yard sale or obtain a part-time job to secure additional funds.

3. Seek financing from nontraditional lenders. While banks are more likely to turn away applicants with less-than-perfect credit and individuals who are on debt management plans, private lenders such as credit unions and asset-based lenders are often willing to work with applicants who have shown even minimal improvement in their credit rating. Set up an appointment with a loan officer to discuss your specific situation. Be willing to provide assets, such as your car's title or down payment funds, as collateral.

References

• Consumer Credit Counseling Service of Rochester: Can I Buy a Home or Car While on the Debt Management Plan?
• U.S. Census Bureau: Amount of Debt Held by Families -- Percent Distribution
• Trinity Debt Management: FAQs
• Experian: What is a Good Credit Score?

Resources

• AnnualCreditReport: Free Credit Reports