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A debt management plan is an informal arrangement, allowing you to make one monthly payment towards all of your debts
We provide IVAs by our licensed insolvency practitioner regulated by the Insolvency Practitioners Association. We provide information about all debt solutions but we do not provide advice as we are not regulated by the Financial Conduct Authority.
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:
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 and may 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:
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:
Here’s some further information to consider if you are looking at a Debt Management Plan or Bankruptcy.
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?
We’d recommend seeking help from established DMP providers who can help you apply.
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 comfortably whilst paying what you owe.
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.
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.
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.
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Talk to us about your situation, and we’ll let you know if an IVA may be a potential solution for you.
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We can carry out a debt suitability assessment, and if you qualify for an IVA we can help put together an application with you. There’ll be no obligation and we’ll be on hand to answer any questions you may have along the way.
Life can have its ups and downs, and so can your financial situation. It might be that you are no longer able 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 that, once again, it’s easy, affordable and stress-free. By seeking help from a professional DMP provider, you can start 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 suitable. Fees may apply.
Money Advice can only provide information about Debt Management Plans, we do not offer these and are unable to provide advice or make recommendations relating to them beyond your considering entering into an IVA. If you are interested in a Debt Management Plan Money Advice can refer you to an FCA authorised Debt Management Plan provider. Money Advice may receive a fee for this referral.
Start by finding out if you qualify by answering the below questions
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.
An IVA is a legal agreement, but a Debt Management Plan (DMP) is informal and both involve you making monthly payments.
IVAs last 5 years, after which the remainder of your debt is written off, whereas with a DMP you continue to pay until your outstanding debt is paid, so this differs between people.
You can read more if you’re considering an IVA or Debt Management Plan.
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, and the monthly payments are intended to be manageable and affordable.
Once you enter into a DMP, you can request for your creditors to freeze further interest and charges (there is no guarantee).
A monthy payment figure is estimated by taking into account the money you owe to creditors and money you have coming in each month.
Once this is known, a request to your creditors to accept a lower payment can be made, along with freezing of interest. If accepted, then you start to make one monthly payment that is distributed to your creditors.
The end of your DMP depends on the amount you pay back per month. If your creditors agree to reduce interests and charges, the time period of the DMP can be reduced greatly.
Our team of experts help thousands of families get their finances back on track with an IVA.
*To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
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