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What is a Debt Management Plan?
A Debt Management Plan (DMP) is an agreement between you and your creditors, for you to fully pay off your debts through one affordable monthly payment. The total amount of this payment is calculated by taking into consideration all of your monthly incomings and outgoings. After this, a reasonable amount is decided which enables you to pay towards your creditors at a reduced rate.
Only ‘non priority debts’ can be included in a DMP which include credit card debts, personal loans and overdrafts.
What you pay is based on your personal circumstances, so you would only pay what you can afford – if things change, then the amount you pay each month may also be altered to cater to this.
It’s an informal agreement which means the contract can be stopped at any time by either you or your creditors. A DMP can often be negotiated by a third party company on your behalf – these companies may charge a fee, but this also means that your creditors are less likely to continue contacting you directly.
Advantages and Disadvantages
There are many factors to consider before opting for a Debt Management Plan. Some advantages / disadvantages include:
What will I have to pay?
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:
Money Towards Debts
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.
The fees charged by your Debt Management company cover their administration costs. These fees are capped at 50% of your total payment but bear in mind this may be more than you would like and may also mean that your plan lasts longer than necessary due to the smaller amount actually going towards your creditors.
Debt Management Plan vs. Other solutions
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:
Debt Management Plan Vs. Bankruptcy
There are major differences between the nature of these two options:
Is a DMP 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?
Here at Money Advice, our experts will take their time to fully understand your personal and financial circumstances and guide you through your options. Check if you qualify
If a Debt Management Plan is deemed a suitable solution for you, we can help by getting you in touch with potential DMP providers if needed.
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Being in debt can be daunting, but putting together an action plan will feel like a burden has been lifted
The new amount you will pay to your lender is concluded from a thorough review of your monthly income and expenditure. This guarantees that it will be affordable for you and allow you to live at ease whilst paying what you owe.
On average, a Debt Management Plan takes 30 days to be implemented to your repayments. This may be extended due to potential complications with your lenders, but that is something for us to worry about – so you can still sit back, relax and let us get the best outcome for you.
Ultimately, the plan allows you to reach the goal of fully repaying your debt, whilst you’re still able to afford the essentials. Allowing you to live your life with some of that pressure lifted off of you.
Everyone needs a helping hand sometimes, and we will do everything in our power to ensure that you can live happily and reassured whilst your debt is being paid at an amount that has been adapted to you. And if your situation changes and you are no longer in need of a reduced payment, the DMP is not a secured contract – you can return to your original payments at any time. To start the process today, click here to contact one of our MoneyAdvice professionals.
Here at MoneyAdvice, we’re aware life can have its ups and downs, just like your financial situation. It might be the case that you are no longer in the position to repay the previously agreed amount. Getting help via a Debt Management Plan allows you to seek professional, expert guidance and not only organise but adapt your current repayment scheme to your current financial position.
A Debt Management Plan is there to provide a solution – overhauling your originally agreed payment plan so once again it’s easy, affordable and stress-free. Backed by their experience and expertise in the industry, through Money Advice’s financial review, organisation, and contact with the original lender, you are again able to repay your debt at your own pace and at an amount that you can afford. It doesn’t get rid of your debt quicker or doesn’t cost any less, but it relieves pressure and allows you to go and live a life – and that’s what truly matters.
DMPs are available subject to eligibility and acceptance, alternative solutions may be offered. Fees payable if continuing service are provided. Money Advice Ltd may receive a fee for passing your information onto carefully selected third parties should you decide to use any of their services.
Discuss your situation with one of our Money Advice Experts
After discussing your circumstances with one of our experts, they will then explore your options that coincide with your specific financial situations; deciphering whether a DMP is the right route for you.
Your Proposed Plan
If we conclude that a DMP is a right route for you, we will pass you onto a third party who will help construct a bespoke proposal which includes the reduced payment amount and the rate in which you pay it.
If you are in agreement, you will have the chance to read through your plan to ensure you understand and agree with everything that we have proposed. This is when you can sign.
Your information will be presented to your original lenders with the signed LOA (letter of authority) for the firm to deal with the debt on your behalf. Once they are in agreement, the DMP plan can be put into effect.
Your reduced repayments will kick into gear, and you will be able to pay back the money you owe at an amount that suits you, all whilst living life not ruled by your debt.
Whilst the interest and charges are requested to be frozen this is never a guarantee but more than likely if the debt repayments are more than what you can realistically afford. Fees are payable with debt management but we will calculate your debt repayment without fees to conclude if another solution can discharge you sooner than 10 years.
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You can only include ‘non-priority’ debts in a DMP, such as:
Some examples of ‘Priority’ debts that can’t be included in a DMP are:
Priority Debts are debts that must come first when carrying out repayments to your creditors – non-payments towards these debts can have very serious consequences and can land you in trouble such as prison or large fines.
It’s crucial that you do make an informed decision – every situation is different, and you’ll need to choose the path that feels right for you personally. Debt Management Plan may be a suitable choice for you if the following circumstances apply:
During your DMP, the firm will pay your lenders on a monthly (or every 4 weeks) basis, and will only send the payment when they have received the amount in full. So, if your situation means you can only pay weekly or fortnightly, it may be that you fall into arrears due to late or overdue payments. If this is the case, it may be a good idea to look into other ways you can manage your debt.
Being on a Debt Management Plan or reducing payments directly does have a knock-on effect on your credit score. But with that said, the DMP is not a secured contract – you can leave and return to your original payments at any time. Plus, as a DMP is not a formal solution to debt so your details do not appear on the Insolvency Register.
Your creditors can take legal action if you do not make payments of the agreed amount or on the agreed dates made between you and the lenders.
Your monthly payments can include multiple debts in one
Monthly payments are manageable and affordable based on what money you have, you won’t need to take out more loans in order to pay off your debts.
Once you enter into a DMP, we can request to freeze your interest and charges and also for contact from your creditors to stop.
Based on the amount you owe to your lenders and your monthly income, we can determine what is affordable for you to pay per month.
When we know this, we can request that your creditors accept a lower payment to clear your debts and that your interest is frozen. Then one monthly payment is made and distributed to your creditors.
The end of your DMP depends on the amount you pay back per month. Also, if your creditors agree to reduce interests and charges, the time period of the DMP can be reduced greatly.
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*To find out more about managing your money and getting free advice, visit Money Helper, independent service set up to help people manage their money.