Debt Management Plan

debt management plan

This page was last updated on 1 January 2021

Debt Management Plan In 2021

When it comes to thinking about mounting debts, for example the debts we owe to credit card companies, you might feel worried and overwhelmed. You may be unsure of who can answer your credit questions and who to approach for debt help.The good news is that there is a range of ways to manage your debt payments in the UK. Even if you don’t feel that your debt issues fit into a neat box or if you don’t have an exact plan in mind, there are helpful sources of advice for navigating the credit industry .This article takes much of the good advice about debt management plans, one solution for your debt, and puts it in one place in a form you can understand. It will explain what a DMP is, how it works and how it can help you pay off your debt.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

What is a debt management plan?

A debt management plan is a means of helping you solve your debts. It involves negotiating an agreement between you and some or all of your creditors in order to pay off your debts

You make regular payments (often monthly payments) to a debt management company. The DMP provider is then responsible for dividing this amount between all of your creditors.

A debt management plan might be viewed as a less drastic way of managing debt. This is because, unlike other debt solutions, e.g. declaring bankruptcy, it does not involve going through the courts.

A DMP can promote a more peaceful situation as it removes the stress out of dealing with all of your creditors.

In order for debt services like DMPs to work, you have to have sufficient funds to repay your creditors.  Creditors also need to agree to receive the money they’re owed over a longer duration than what was originally laid out in your credit agreement.

What does DMP mean?

When searching for options relating to debt repayment plans and charities that help with debt, you may have come across the letters ‘DMP’. DMP is simply an abbreviation for debt management plan.

Here is a short video explaining more about debt management plans.

When is debt management help not appropriate?

You should not pursue online debt management plans if you can’t meet the minimum repayments for all of your debts and/or don’t have enough money to meet all of the basic, necessary outgoings (e.g. your rent, cost of living, gas and electricity bills).

Can I approach a DMP provider for help with priority debts?

Priority debts cannot be incorporated in a DMP. Priority debt payments include a diverse range of bills. One example is council tax arrears.

However, a DMP is a good option if you’re looking for a payment plan for debt which covers non priority charges e.g. credit debts.

Where can I find a free DMP?

If you are concerned about keeping costs down or can’t afford to pay for a dmp, debt help charities and debt counseling services like Step Change and Citizens Advice are helpful sources of support. They can also answer questions on more than one area of your finances and will try to give you all of the support you need.

If your finances are in a bit of a tight spot and you need to stick to a budget, it can be a good idea to choose a debt payplan with one the free dmp providers around. One such service in the UK is actually called ‘Payplan’. 

If you go with a free DMP, you may feel like your credit circumstances are within your control. You may feel in control because the highest possible percentage of your money will be used to pay off your dmp debts. 

Are DMPs legally binding?

A DMP is not legally binding. The fact that it is not legally binding means that there is no minimum commitment period and you can abandon it at any time.

What should I remember when selecting a DMP adviser?

When it comes to choosing advisers, you should make sure that they have the customer’s best interests in mind. If advisers have a financial incentive to recommend a particular debt solution to solve the issue with your creditors, you cannot guarantee that their advice is objective.

To avoid conflicts of interest, it is in your interest to seek debt advice from more than one debt advice service. Try debt advisers found via an online DMP site or conduct a free debt search to find an impartial adviser.

"When searching for options relating to debt repayment plans and charities that help with debt, you may have come across the letters ‘DMP’. DMP is simply an abbreviation for debt management plan."

What do I need to know about fees when pursuing a debt management plan DMP?

You should ask a number of key questions concerning fees so you are in a good position to evaluate debt advice from different sources. When asking about setup fees and monthly fees, verbal advice is not good enough: you should also ask them to include an interest and charges price quote in writing, along with a contract.

You should steer clear of any debt solution that involves high upfront interest and charges. An adviser should recognise that you need help and respect the fact that you need to gather time and information from more than one adviser.

What period of time is required to initiate a debt management plan DMP?

The set up duration likely depends on your providers. DMPs tend to take a matter of weeks to be set up.

Of course, it is possible that discussions with creditors might lengthen the process. Creditors may refuse the terms of the agreement if they don’t think that you will pay back the money owed to them.

What is the duration of a debt management plan?

The average debt management plan has a duration of five to ten years depending on your financial situation and personal circumstances. For example, if you decided to pay off non priority debts (e.g. student loans) with a smaller one monthly payment, it would take longer than if you increased the debt management plan payments. 

Obviously your payments do not depend on how much you want to be free of debt, rather your personal situation is more important. If your income increases, for example, you will be able to increase your one monthly payment for a shorter DMP.

Will I need to borrow money to access a DMP?

This payplan is one of the less risky debt solutions as you will not need to take out any more credit. The experience may be less stressful and costs less because you will be following the old adage: never borrow more to get yourself out of debt.

Why do DMPs usually involve monthly payments?

In most cases, a debt payment plan involves making a single monthly payment to your debt management service, which can then be distributed among your creditors. 

The consistency of monthly payments arguably sends a message to your creditors. Creditors may realise that you are committed to repaying your debts.

A monthly payment can also be a source of great reassurance. With a regular or monthly payment you will feel that you are sticking to your debt plan management.

Are debt management programs only appropriate for unsecured debts?

Yes – all debt management advice will inform you that this kind of repayment plan can only be used for paying back ‘unsecured’ debts, for example, debts that haven’t been guaranteed against your property.

How are credit cards affected by DMPs?

It is necessary to discontinue credit cards that are included within your DMP. This is because creditors agree to reduced interest rates on your credit card accounts on the condition that you close the card.

Lower interest rates on your credit card are in your interest because the balance you need to pay will be lower and you can focus on clearing the credit card debt rather than the interest rates on the debts.

This control measure regarding your credit card is important. It ensures that your payment plan is used to pay back payments to your creditors and that debt freedom is the ultimate goal of the lower interest rate.

payment plan for debt

Will creditors be made aware of my DMP?

Many of the debts that are included in a debt management programme will be visible on your credit report and should be updated as and when they are repaid. Creditors will be aware of your DMP.

The lender will flag each of the accounts that are part of the debt management plan so that other lenders will recognise that those accounts are part of your DMP when they are looking at the credit report.

Will debt management plans have a long-term impact on your credit rating?

After you complete your DMP it’s likely most of your accounts will either return to normal or be closed.

If they are closed then they’ll be removed from the credit report six years from the day that they’re closed.

If your account was a default and that was included in your DMP then that will be removed six years from the start date of the default because they are only kept on the report for six years. 

Unfortunately, having accounts with arrears or defaults is likely to leave you with a very low credit score. Once your DMP ends you should find that your score improves.

Will a DMP implicate my partners’ income?

You may want to know if this payplan option will affect the income of any partners (present or past). If you’d like to clear debts more quickly, it can be a good idea to take into account the income of partners, particularly if you share a household. 

It might be that the debts relate to more than one person even if they are only in one name.

But you also have the option of partitioning the cost of household outgoings. The list will then only consider your part of the income and budget. 

Debt management companies might recommend the second of these debt solutions if the debt was accrued before the relationship with the partner.

charities that help with debt

Is further borrowing a possibility if I have a DMP?

Depending on the terms and conditions of your DMP, it is possible that you won’t be allowed to borrow during your debt management plan. However, if you are allowed to borrow and you do want to apply for credit it’s always important to make sure that you can afford the repayments on that credit. 

Can I get a mortgage if I have a DMP?

Accessing a mortgage may be a tricky enterprise if you’re on a debt management plan. If you already own a house, you might be considering remortgaging in order to pay off your debt. However, this will be rendered more difficult by a low credit score.

If a mortgage could be on your horizon, you should take advantage of quotes to get a better sense of your options. Speaking to your lender and explaining the circumstances might lead to helpful guidance. 

You could also use a specialist broker for some guidance that is specific to your situation.

Will a DMP have consequences for my credit file? 

It will because being on a DMP generally involves making lower repayments than initially agreed when you borrowed money.

How can I find a registered office that is a DMP provider?

The government debt scheme website signposts the Financial Services Register. This is an inventory which lists all authorised companies that can help you.

How does it differ from a debt consolidation loan?

The latter involves moving all of your loans into one place so that you have only one company to pay back each month. It is generally considered a riskier choice.

Can I use one to pay off child support or income tax ?

No you cannot as both are classified as priority debts.

How might I differentiate between a credit score and a credit rating?

These terms are often used interchangeably but, as an individual, you are more likely to be assigned a credit score.

Learn More About Debt Management In The UK

Debt Management plans

A debt management plan is a means of helping you solve your debts. It involves negotiating an agreement between you and some or all of your creditors in order to pay off your debts.

mortgages if you are bankrupt

There is no hard and first rule when it comes to what lenders will accept your mortgage application if you want to get a mortgage after bankruptcy. Mortgage lenders who lend to discharged bankrupts generally consider each unique case individually.

debt relief orders

Debt relief orders (often abbreviated to DRO) are a method of debt reduction if your debts are more than you can manage and you cannot afford to pay them.

What is an IVA?

An IVA is a kind of debt solution: more specifically, it is a legally binding agreement between you and your creditors to pay back your debts over a particular time period. This article explores the impact of having an IVA and what it could mean for your day to day life.

what is bankruptcy

Bankruptcy is a legal status which has a duration of one year in England and Wales. It can be an option for taking care of debts that you are incapable of paying.

impact of credit rating an IVA

An IVA won’t affect your credit score forever. It will normally only be kept on your credit file for six years in total.  This is because an individual voluntary arrangement usually lasts for five years, and after it ends it will remain on record for one more year.

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