What is a Debt Management Plan (DMP)?
A Debt Management Plan (DMP) is an informal agreement between you and your creditors that allows you to repay your non-priority debts – such as credit cards, personal loans, or overdrafts – at a rate you can afford. Rather than juggling multiple payments each month, a DMP consolidates these debts into a single, manageable monthly payment, making it easier to keep track of your finances and avoid missing payments.
Unlike formal arrangements such as Individual Voluntary Arrangements (IVAs) or bankruptcy, a DMP is not legally binding. This means you are not legally protected from creditor action, but in practice, most creditors will agree to freeze interest and charges if you stick to the agreed payments. Following your DMP consistently can help prevent further action, such as court proceedings or debt collection, as creditors see you are making a genuine effort to repay what you owe.
A DMP is suitable for people struggling with unsecured debts who want to pay them off but can’t afford the full repayments. It can be particularly helpful if you have several creditors and your total monthly payments are more than you can manage. However, it’s important to note that a DMP does not cover priority debts like mortgage arrears, council tax, or court fines, and these must be dealt with separately.
If you are unsure whether a DMP is right for you, or if you want to explore other ways of managing debt, it’s important to seek advice. Understanding all your options will help you make an informed decision and regain control of your finances.
How Does a Debt Management Plan Work?
When you enter a Debt Management Plan (DMP), you agree a new way to repay your unsecured debts – such as credit cards, personal loans, or overdrafts – at a pace you can afford. Here’s how the process typically works:
Setting Up a DMP
To begin, you’ll need to gather details about your debts, income, and essential living costs. Most people set up a DMP with help from a debt management company or a charity. These organisations act as intermediaries between you and your creditors (the people or companies you owe money to). They’ll review your financial situation and help you work out a realistic monthly payment.
Debt management organisations will contact your creditors to ask them to accept reduced payments. While creditors aren’t legally required to agree, many will cooperate if you show you’re committed to paying what you can afford. Unlike some formal solutions, DMPs are not legally binding, and you don’t need to go to court to set one up.
You might also want to consider how DMPs compare to informal repayment arrangements, which are another way to manage debt without involving the courts.
How Payments Are Calculated and Organised
Your monthly DMP payment is based on your disposable income – what’s left after covering essential living expenses like rent, utilities, and food. The debt management company or charity will help you create a budget to work this out.
Instead of making separate payments to each creditor, you’ll make a single monthly payment to the DMP provider. They’ll then distribute the money among your creditors according to the plan. This can make managing your debts simpler and less stressful.
The Role of Debt Management Companies and Charities
Debt management companies and charities play a key role in setting up and managing your DMP. They:
Help you create a realistic budget
Negotiate with creditors on your behalf
Handle payments and distribute them to creditors
Provide ongoing support if your circumstances change
It’s important to know that some companies charge fees for these services, while charities often provide them for free. All reputable debt management firms should be regulated by the Financial Conduct Authority (FCA), which sets standards to protect consumers.
Keeping to Your DMP
If you stick to your DMP and make payments on time, your creditors are more likely to freeze interest and charges, making it easier to clear your debts over time. Your DMP will continue until all included debts are repaid or until your circumstances change.
However, if you miss payments or stop paying altogether, creditors may start adding interest and charges again, or even take legal action to recover the debt. Missing payments can also affect your credit rating. If you’re struggling to keep up, it’s important to let your DMP provider know as soon as possible – they may be able to adjust your plan or offer extra support. For more on what can happen if you fall behind, see our guide to missed payments and debt arrears.
A DMP can be a helpful way to take control of your debts, but it’s important to understand how the process works and what to expect before you start. If you’re unsure whether a DMP is right for you, consider seeking advice from a regulated provider.
Benefits and Drawbacks of a Debt Management Plan
A Debt Management Plan (DMP) can be a practical way to get on top of your debts, but it’s important to weigh up both the benefits and the drawbacks before deciding if it’s the right solution for you.
Benefits of a Debt Management Plan
1. Simpler, More Manageable Payments
A DMP allows you to consolidate multiple unsecured debts into a single, affordable monthly payment. This can make it much easier to keep track of what you owe and budget for your repayments.
2. Reduced Pressure from Creditors
Once your DMP is in place, your provider will usually handle communications with your creditors. This can reduce the stress of dealing with demands or collection calls, as your creditors should contact your provider instead of you.
3. Avoiding Court Action
By showing you are making regular payments through a DMP, you may be able to avoid more serious consequences such as court action or enforcement measures. Creditors are often willing to accept reduced payments if they can see you are committed to repaying what you owe.
4. Flexible and Informal
A DMP is not legally binding, which means you can leave the plan at any time if your circumstances change. This flexibility can be helpful if your income goes up or down.
Drawbacks of a Debt Management Plan
1. Impact on Your Credit Rating
Making reduced payments through a DMP is likely to be recorded on your credit file. This can affect your credit rating and make it harder to get credit in the future, even after your debts are paid off.
2. Not Legally Binding
Because a DMP is an informal agreement, your creditors do not have to stick to the terms. They can still take legal action, add interest or charges, or change their minds about accepting reduced payments.
3. Interest and Charges May Continue
Unless your creditors agree to freeze interest and stop additional charges, these can still be added to your debts. This means it may take longer and cost more to clear what you owe. Always check with your DMP provider whether your creditors have agreed to freeze interest and charges.
4. Possible Fees
Some DMP providers charge a fee for their services, which can reduce the amount of money that goes towards paying off your debts. Free DMP services are available, so make sure you understand any costs involved before you commit.
5. Not All Debts Are Covered
A DMP can only help with unsecured debts like credit cards, personal loans, and overdrafts. It won’t cover secured debts (like mortgages) or certain priority debts such as fines and penalty charges, council tax, or child maintenance. You’ll need to make separate arrangements for these.
Keeping to Your Plan
It’s essential to stick to your agreed payments each month. Missing payments can damage your relationship with creditors and may lead them to withdraw from the plan or take further action. If your circumstances change and you’re struggling to keep up, contact your DMP provider as soon as possible to discuss your options.
Is a DMP Right for You?
A Debt Management Plan can offer a structured way to deal with multiple debts, but it’s not suitable for everyone. Consider the impact on your credit rating, the possibility of ongoing interest and charges, and whether your debts are eligible. Take time to explore all your options and seek advice if you’re unsure.
Setting Up a Debt Management Plan
Setting Up a Debt Management Plan
Before starting a Debt Management Plan (DMP), it’s important to take a few key steps to make sure it’s the right choice for your situation. Here’s what you need to know about the process, what information you’ll need, and what to expect along the way.
1. Assess Your Debts and Income
Begin by making a full list of all your debts, including credit cards, loans, overdrafts, and any other money you owe. Gather details such as outstanding balances, interest rates, and monthly payments. Next, review your income and essential expenses – like rent or mortgage, utilities, food, and travel – to work out how much you can realistically afford to pay towards your debts each month.
Taking the time to understand your financial position is crucial. If you have recently taken out credit that you regret or feel was mis-sold, you may want to explore your rights around cancelling a credit agreement before committing to a DMP.
2. Contacting Creditors and Negotiating Repayments
Once you know how much you can afford, you can approach your creditors to discuss lower, more manageable payments. Some people choose to do this directly, explaining their situation and proposing a new repayment plan. Many creditors are willing to accept reduced payments if you can show you’re facing financial difficulties but are committed to repaying what you owe.
When negotiating, be honest about your situation and provide evidence of your income and outgoings. Keep records of all correspondence and agreements.
3. Using Debt Management Companies or Free Debt Advice Charities
You don’t have to set up a DMP on your own. There are two main options for help:
Debt management companies: These organisations can negotiate with your creditors and manage your payments for you. However, some charge a fee for their services, which can reduce the amount you pay towards your debts each month.
Free debt advice charities: Charities such as StepChange, National Debtline, and Citizens Advice offer free, confidential support. They can help you assess your situation, create a realistic budget, and set up a DMP without charging fees.
Choosing a free service means more of your money goes directly towards clearing your debts.
4. Information You’ll Need to Provide
Whether you set up a DMP yourself or use a provider, you’ll need to supply:
Details of all your debts (lenders, balances, account numbers)
Proof of income (such as payslips or benefits statements)
Evidence of your regular expenses (bills, rent/mortgage, council tax, etc.)
A breakdown of your monthly budget
Being thorough and accurate helps ensure your DMP is affordable and acceptable to your creditors.
5. What to Expect During the Process
After submitting your information, your DMP provider (or you, if doing it yourself) will propose a repayment plan to your creditors. Creditors may agree to freeze interest and charges, but this isn’t guaranteed. Once agreed, you’ll make a single monthly payment, which is distributed to your creditors.
It’s important to stick to your plan and keep your provider informed if your circumstances change. A DMP is an informal arrangement, so creditors can withdraw at any time, but most will continue to cooperate if you keep up with payments.
Setting up a DMP can affect your credit rating and may take several years to clear your debts, but it can provide a structured way to regain control of your finances. If you’re unsure whether a DMP is right for you, consider seeking advice from a free debt charity before making any commitments.
By understanding each step and knowing what to expect, you can approach setting up a Debt Management Plan with confidence and make informed decisions about managing your debts.
Managing Your Debt While on a Debt Management Plan
Managing Your Debt While on a Debt Management Plan
Staying on track with a Debt Management Plan (DMP) requires careful budgeting, regular communication with your provider, and a clear understanding of your rights and options. Here’s how you can effectively manage your finances while on a DMP, and what to do if your circumstances change.
Practical Tips for Budgeting and Managing Your Finances
A successful DMP depends on sticking to a realistic budget. Start by listing all your essential monthly expenses – such as rent or mortgage, utility bills, food, and travel costs. Deduct these from your income to see how much you can afford to pay towards your debts. Regularly review your budget, especially if your income or outgoings change. Consider setting up a separate bank account for your essential spending and DMP payments to avoid accidental overspending.
It’s also wise to keep track of all payments made under your DMP and check your statements regularly. If you’re struggling to make ends meet, look for areas where you can cut back, such as non-essential subscriptions or luxury spending.
Dealing with Missed Payments or Changes in Circumstances
If you miss a payment or think you might not be able to keep up with your DMP, contact your provider as soon as possible. Missing payments can lead to your creditors withdrawing from the plan, potentially adding fees or interest to your debts again. For more information on what to do if you fall behind, see our guide to missed payments and arrears.
If your financial situation changes – perhaps due to a loss of income, illness, or unexpected expenses – let your DMP provider know straight away. They may be able to adjust your payment plan to reflect your new circumstances, helping you avoid defaulting on your agreement.
Repaying Debts Early or Changing Your Plan
If your financial situation improves, you might want to increase your payments or pay off your debts sooner. Most DMPs are flexible, allowing you to make extra payments or settle debts early without penalty. However, always check the terms of your plan and speak to your provider before making changes. For more details on your options, see our section on early repayment of a loan or credit.
If you need to change your DMP – for example, to add or remove debts, or because your circumstances have changed – your provider can guide you through the process. They should review your income and outgoings to ensure any changes are affordable and fair.
If Creditors Take Further Action
While most creditors will pause further action once you’re on a DMP, some may still contact you or even take legal steps, especially if payments are missed. If this happens, stay calm and inform your DMP provider immediately. They may be able to negotiate on your behalf or help you respond.
If a creditor uses bailiffs or threatens enforcement action, it’s important to understand your rights and options. Our page on negotiating with bailiffs offers practical advice on how to handle these situations and protect your belongings.
Understanding the Role of Debt Management Firms
Debt management firms in the UK are regulated by the Financial Conduct Authority (FCA), which sets standards for fair treatment and transparency. This regulation helps ensure that your DMP provider acts in your best interests and that you receive clear information about your plan. If you have concerns about your provider, you can check their authorisation status or make a complaint through the FCA.
By keeping organised, communicating openly with your provider, and knowing your rights, you can manage your debts more effectively while on a DMP. For more support, explore our related guides and resources to help you stay in control of your finances.
Special Considerations in Debt Management Plans
When setting up or managing a Debt Management Plan (DMP), there are several special considerations to keep in mind. These can affect how your debts are treated, your legal rights, and the support you can access to manage your finances more effectively.
Gambling Debts in DMPs
Gambling debts can be especially challenging to manage within a DMP. Not all creditors will treat gambling debt the same way as other types of unsecured debt, and some may be less willing to accept reduced payments. If you are dealing with gambling debt, it’s important to be honest with your DMP provider about the nature of these debts. Specialist advice and support are available, and some organisations can help you address both the financial and underlying issues related to gambling. Including gambling debts in your DMP may also require you to show that you are taking steps to address your gambling behaviour.
Debt Time Limits and Statute-Barred Debts
Understanding how long creditors can pursue debts is crucial when considering a DMP. Most unsecured debts in England, Wales, and Northern Ireland become “statute-barred” after six years if no payment has been made and no court action has been taken in that time (five years in Scotland). Once a debt is statute-barred, creditors can no longer take legal action to recover it, although they may still ask you to pay. Before including an old debt in your DMP, check whether it is still enforceable. For more detailed information, read about debt time limits and statute-barred debts.
Protecting Yourself from Fake Debt Collectors
Unfortunately, people in debt are sometimes targeted by scammers posing as legitimate debt collectors. These fake debt collectors may use aggressive tactics or ask for payment to unusual accounts. To protect yourself, always check the credentials of anyone who contacts you about a debt. Genuine debt collectors should provide written proof of the debt and will not pressure you to pay immediately or threaten you with arrest. If you have doubts, contact your DMP provider or seek independent advice before making any payments.
Accessing Financial Support
If you’re struggling to keep up with essential costs while on a DMP, you might be able to access extra financial support:
Universal Credit Budgeting Advances: If you receive Universal Credit, you may be eligible for a Universal Credit Budgeting Advance, which is an interest-free loan to help with emergency expenses. Learn more about eligibility, loan amounts, and how it works by visiting Universal Credit Budgeting Advances – GOV.UK.
Help with Housing Costs: If you’re worried about paying your rent or mortgage, there are schemes and benefits designed to help. Find out more about your options for help with housing and how these can ease financial pressure during your DMP.
Taking the time to understand these special considerations can help you make informed decisions and protect your rights while managing your debts. If you have specific concerns, don’t hesitate to seek advice tailored to your situation.
