What is a Debt Management Plan?

A DMP is an informal agreement between you and your creditors to repay all your debts. You make regular payments to a licensed debt management company. The company shares your payment out between your creditors charging an initial set-up fee and an ongoing handling fee every time you make a payment. Some charities may do this free of charge.

Your creditors can continue to contact you throughout the life of your plan and can cancel your plan if you do not keep up payments.

Considering a Debt Management Plan?

A DMP can be a good debt solution, especially if your problems are likely to be short term. It may be suitable if you have available income each month once your priority costs have been met e.g. food, accommodation and utility bills.

If this is not the case you may need to consider a formal insolvency solution, such as an IVA, to deal with your debts.

Advantages of a Debt Management Plan

  • One affordable monthly contribution to your creditors.
  • Debt management is an informal arrangement that avoids the need for formal insolvency procedures such as an IVA or bankruptcy.
  • By reaching an agreement with your creditors a DMP may suspend actions against you such as County Court Judgments (CCJs).
  • In many cases, creditors may freeze interest or charges.
  • Your monthly debt repayments may be reduced.

Disdvantages of a Debt Management Plan

  • Your creditors are not obliged to accept a DMP. The arrangements are informal meaning your creditors can change their mind at any time.
  • Creditors including bailiffs, have the right to continue action
  • Your credit rating may still be affected.
  • While such arrangements reduce your monthly repayments to make them affordable it usually means it will take a much longer period to repay your debts.
  • Creditors are not obliged to freeze interest or charges.
  • Your home and other assets of value are not protected from creditors.
  • Unless your debts are less serious you could end up in debt for a very long time. In the worst case you may find you have no real prospect of getting out of debt and becoming debt free.
  • Debts included/excluded from a DMP

    Debt included in a DMPDebt excluded from a DMP
    Credit CardsSecured Loans
    Personal LoansGuarantor Loans
    Catalogue DebtsRent and Council Tax Arrears
    Store CardsHP Finance
    OverdraftsLease Agreements
    Payday Loans
    Doorstep Loan