Debt Management Plan (DMP)

What is a Debt Management Plan?

A Debt Management Plan (DMP) is an informal arrangement made with your creditors to pay a monthly amount that you can afford. Normally you will repay your affordable amount in monthly instalments until your debts have been paid in full. You can set up a DMP yourself by dealing directly with your creditors, with the help of a charity, or instruct a commercial debt management provider to act on your behalf.

If you choose to set up a DMP with a provider, a monthly contribution that you can afford would be agreed before negotiating with your creditors. You would make your monthly contribution and your provider would deal with your creditors for you.

When you instruct a debt management provider, a fee may be taken from your monthly contribution in respect of the service provided, although free providers are available.

Advantages of DMP

• A DMP is an informal arrangement that avoids the need for formal insolvency procedures such as an IVA or bankruptcy
• You make one monthly payment
• Creditors will, in many cases, freeze interest and charges
• Your monthly debt repayments will be reduced to make them affordable
• There are no upfront fees and the service can be provided free of charge
• You can cancel your DMP at any point
• Illustrates that you are willing to tackle your debts
• Can be a short term solution to pay off debts at a more manageable rate

Disadvantages of DMP

• A DMP avoids the need for any formal insolvency procedures such as an IVA or bankruptcy, although by being an informal arrangement, it does mean creditors are not obliged to accept the offer or can change their mind at any time
• Your credit rating may be affected. A DMP means you are making a reduced payment to your creditors and although this has been agreed by your creditors it will still be noted on your credit file
• Creditors may take further action to recover the debt, which may involve additional costs or charges. If a creditor has already commenced recovery or legal action, there is no guarantee that it will be suspended or withdrawn
• Your monthly debt repayments may be reduced to make them affordable, but this usually means you will repay your debts over a longer period, and if interest and charges aren’t frozen, it could also cost you more
• If you are a homeowner, creditors may seek a charging order to secure their debt against your property
• You will continue to pay into your DMP until all of your debt has been paid off in full, there is no debt write off

Fees and Charges

If you choose to deal with your creditors directly, there will be no fees charged – although you will need to negotiate your payments with your individual lenders yourself.

If you are assisted by a charity, they usually do not charge a fee for their services and will negotiate with creditors on your behalf.

If you choose to appoint a commercial debt management company to assist you, they will charge fees. These vary between each company but typically are the equivalent of your first 2 full monthly payments and then either a % of your monthly contribution or £38.50 per month thereafter. This will be deducted from your payment before any money is sent to your creditors.

Help and Advice

If you’re considering a DMP as a solution to your debts, complete our online form today and see if you qualify and find out how much debt you could write off.