A Debt Management Plan, or DMP, is an informal agreement between you and your creditors to repay your debts through a series of monthly payments, for as long as it takes you to repay your total debts.
In this guide, we’ll look at Debt Management Plans in more detail, including what they are and how they work, who can benefit from a Debt Management Plan, and how they help people pay off serious debts.
Is a DMP better than an IVA?
A DMP gives you time to repay your debts in full, while an IVA allows you to repay some of your debts, and write off the debts you can’t afford.Debt Management Plans are informal agreements with unsecured creditors which allow people with serious debts to repay either part, or all, of what they owe over a realistic timeframe.
Rather than repaying your debt using a lump sum, a DMP gives you the time you need to repay some or all your debt through a series of affordable monthly installments.
Debt Management Plans turn all of your debts into one monthly payment, offer your protection from creditors, and freeze interest and charges on your debts until you are able to repay what you owe.
You will do this by making regular payments to your creditors each month, allowing you to settle your debts while having enough money left over to live comfortably.
The size of these payments will be dictated by what you can afford. Creditors do occasionally accept DMPs that will see them recoup less than the total amount owed, which is why it can pay to work with a DMP provider or Insolvency Practitioner who can negotiate with creditors on your behalf.
Creditors do occasionally accept DMPs that will see them recoup less than the total amount owed
Because a Debt Management Plan typically involves repaying every penny of your total debt, having a reliable source of disposable income is more important than your overall debt level.
Other than having the income required to make a regular monthly payment, a DMP might be the best option for you if you:
Your disposable income is what you have after essential costs like food, rent, and utility bills, so these factors will all be considered when you begin the process of setting up a DMP.
While the DMP process can vary depending on who sets up the arrangement, most DMPs are set up as outlined below:
Most people set up a DMP through a Debt Management Plan provider. As the name suggests, DMP providers are organisations who specialise in free debt advice, as well as setting up and managing Debt Management Plans.
Your provider will examine your household income and expenditure, use that information to draft a DMP proposal, and share that proposal with your creditors. Your provider may even be able to convince your creditors to accept monthly payments at a reduced rate.
Once you’ve found a suitable DMP provider who has helped you draft a proposal to repay your debts, your provider will then share that proposal with your creditors.
Because a DMP isn’t a legally binding agreement, your creditors are under no obligation to accept your DMP. That said, as long as most creditors view it as being in their best interest, your DMP will be approved.
Only after your proposal is drafted and your creditors have agreed to the terms of the arrangement, will you start making repayments towards your DMP.
Payments will be taken at the same time each month and your provider will distribute them among your creditors. As long as you keep to your end of the agreement, all the debts included in the DMP will be cleared once the payment term ends.
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
Unlike Individual Voluntary Arrangements (IVAs), there is no minimum period that a Debt Management Plan will last.
The length of the repayment plan largely depends on the size of your total debt, and therefore the size of your monthly repayments.
If, for example, your total debt is £4,800 and you can afford to pay £100 per month towards your debts, then your DMP will last approximately 48 months. If you can afford to pay £400 per month, however, then your DMP will last closer to 12 months.
Debt Management Plans are designed to help you deal with non-priority debts, such as:
Priority debts are not suitable for a DMP. If you owe money in court fines, council tax, mortgage arrears, or other priority debts, you will have to keep up your payments alongside the money you owe towards your DMP.
Priority debts are not suitable for a DMP. If you owe money in court fines, council tax, mortgage arrears, or other priority debts
Like most debt solutions, a DMP will be listed on your credit report for six years from the day your arrangement begins, and will probably lower your credit score.
The lower your credit score is, the less trustworthy you appear to lenders, so having a Debt Management Plan may make it temporarily more difficult for you to take out a loan, be accepted for a mortgage, or otherwise access new lines of credit.
Once a period of six years has passed, any record of your DMP will be removed from your credit file, leaving you free of the non-priority debts included in the arrangement, and able to gradually start rebuilding your credit rating.
Although a Debt Management Plan is a useful tool for repaying non-priority debts, living with a DMP does come with its challenges.
For as long as your DMP lasts, a reasonable portion of your overall income will go towards paying off your debts. Even though your DMP provider will ensure you have enough left over for living costs, you will need to live under a strict budget until the end of your payment term.
It’s important that you maintain your monthly payments each month. If you find yourself continually missing payments, creditors can apply for your DMP to be cancelled, meaning you will have to find a way to repay what you owe through other means.
It’s never nice knowing you owe money to people, especially if your creditors are starting to put pressure on you to pay up. You may want to repay what you owe, but you’re just not sure where to get the debt help you need.
That’s where Your Debt Expert comes in. With decades of experience in the personal insolvency industry, we can offer you free debt management plan advice, as well as guidance on other options available to you.
Don’t hide away from your debt – take action. To get professional debt advice from trained advisers, contact us today on 0800 082 8086.
Protects you from creditors
Reduces monthly payments
Helps you avoid bankruptcy
Flexible plan
Deals with your unsecured debts
Not legally binding
No debt write-off
Subject to creditor approval
Takes longer to complete
Not suitable for all debt types
Advice and support is also available at Money Helper.
*A debt write off amount of between 25% and 75% is realistic, however, the debt write off amount for each customer differs depending on their individual financial circumstances and is subject to the approval of their creditors. The example provided has been achieved by 10% of our IVA customers in the last 12 months.
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This website is in no way approved by the Government. The product (IVA) we administer through the group and process with our Insolvency Practitioners is covered under the following legislation: The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with their creditors to pay their debts in full or in part over time as an alternative to bankruptcy. Our advisors will go through all your debt options including IVA (Individual Voluntary Arrangement) opportunities which are available for people living in England, Wales and Northern Ireland. Help can only be offered following an initial fact-finding process. An Individual Voluntary Arrangement (‘IVA’) is subject to the customer meeting qualifying criteria and gaining creditor acceptance. Initial advice is free and there is no obligation to proceed into an arrangement. Arrangement fees will be clearly explained to you in writing by your advisor.