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A Debt Management Plan (DMP) in the UK is an informal agreement between an individual and their creditors to repay non-priority debts, such as credit cards, overdrafts, and personal loans. It is typically arranged through a third-party organization, which negotiates with creditors on the individual's behalf to establish a more affordable monthly payment plan.

A DMP does not involve the court and is flexible, meaning it can be adjusted if your financial situation changes. While it does not reduce the total amount of debt, it can help by consolidating payments into one manageable amount, often with a freeze on interest and charges. This allows the debtor to repay their debts at a pace that suits their financial circumstances without the constant pressure from creditors.

A DMP is suitable for those who have a regular income but are struggling to keep up with their debt payments. However, it’s important to note that a DMP is not legally binding, so creditors could still take legal action to recover the debt, though this is rare if payments are being made as agreed. Additionally, entering a DMP may impact your credit rating, making it more difficult to obtain credit in the future.

Individual to You

The new payment amount is determined by reviewing your income and expenses, ensuring it's affordable while allowing you to live comfortably.

Set Up within a Month

On average, a Debt Management Plan takes 30 days to be implemented for your repayments. This may be extended due to potential complications with your lenders.

The Debt Gets Paid

Ultimately, the plan allows you to fully repay your debt whilst you can still afford the essentials. Allowing you to live with some of that pressure lifted off you.

You’re Left at Ease

If your situation changes and you no longer need a reduced payment, the DMP is not a secured contract – you can return to your original payments at any time.

About DMP

  • What is a Debt Management Plan?

    A Debt Management Plan (DMP) is an arrangement between you and your creditors to repay your debts through a single, affordable monthly payment. This payment is calculated based on a thorough assessment of your monthly income and expenses. From there, a reasonable payment amount is set, allowing you to repay your creditors at a reduced rate.

    DMPs are only applicable to non-priority debts, such as credit card balances, personal loans, and overdrafts. Your payment is tailored to your financial situation, so you only pay what you can afford. If your circumstances change, the payment amount can be adjusted accordingly.

    Since a DMP is an informal agreement, it can be terminated at any time by either you or your creditors. Often, a third-party company can negotiate the DMP on your behalf; while these companies may charge a fee, they can also help reduce direct contact from your creditors.

    • Advantages


    • You only pay what you can afford and this amount can change if your circumstances do.
    • A Debt Management firm will actively deal with the creditors on your behalf.
    • You can cancel the plan at any time you wish.
    • All your eligible debts can be consolidated into one monthly payment.
    • It’s possible that some creditors may freeze interest, as well as reduce repayment amounts.


      Disadvantages


    • Your creditors can cancel at any time and there is no obligation for them to agree to the plan.
    • A Debt Management Plan may have a negative impact on your credit file – this may make it difficult for you to apply for credit whilst on the plan, as well as for a period of time after.
    • There may be additional costs entering into a Debt Management Plan.

  • What you pay towards a Debt Management Plan depends entirely on your debt amount and the DMP provider handling your plan. You will typically be paying an amount to cover your eligible debts, as well as any fees charged by the DMP company.

    All of these amounts should be outlined by any company handling your case before you agree to start anything, so it’s worth reading over your plan thoroughly to make sure you know exactly where your money is going.
    Here’s a brief breakdown of what your payments will cover:

    Debt Repayments
    The non-priority debts that are included in your DMP will be subject to your creditors approval, but you can start making your proposed reduced payments straight away until they have reviewed this.

    Interest and Charges
    Your creditors are not obliged to freeze interest and charges for your DMP, so your overall debt level may continue to increase – your monthly payments will go towards these.

    Other Fees
    The fees charged by your Debt Management company cover their administration costs. These fees are capped at 50% of your total payment and may mean that your plan lasts longer than necessary due to the smaller amount actually going towards your creditors.

  • DMP Vs Individual Voluntary Arrangement (IVA)

    Both of these plans allow you to consolidate your debts into one monthly payment, but there are some key differences to consider between these solutions:

    • Interest and charges – your creditors are not obliged to freeze interest and charges with a DMP, meaning that the total amount you are paying off continues to increase. With an IVA interest and charges are frozen.
    • An IVA is a formal arrangement between you and your creditors, so it is formally binding once agreed to. A DMP is informal and can be cancelled at any time by you or your creditors.

    Here’s some further information to consider if you are looking at an IVA or Debt Management Plan.


    Debt Management Plan Vs. Bankruptcy

    There are major differences between the nature of these two options:

    • A DMP is an informal agreement and your creditors are not obliged to agree to it. Bankruptcy is an official court order in which all your creditors look at your assets and liabilities to determine if you’re eligible.
    • You can only include unsecured debts in a DMP, whereas most debts will typically be included in bankruptcy.
    • Bankruptcy lasts 12 months, whereas a DMP lasts for however long is needed for the outstanding debts to be paid off.

    Here’s some further information to consider if you are looking at a Debt Management Plan or Bankruptcy.

  • Is a Debt Management Plan right for me?

    When choosing a debt solution, it’s crucial that you do make an informed decision – every person’s situation is different, and you’ll need to choose the path that feels right for you personally.

    There may not be a specified end date for your DMP, due to the addition of interest from creditors and potential added fees from the provider, but this may still be an option if you are confident that you can afford to keep up monthly payments towards your debts.

    It may also be an option if you prefer an informal arrangement which you may cancel at any time you like – however, you must also be prepared in case any creditors withdraw from the plan too.

  • How do I apply for a Debt Management Plan?

    We’d recommend seeking help from an FCA regulated practice or charitable organisation.