Debt Management Plan

Guide

Overview

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.

What is a Debt Management Plan?

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.

How do Debt Management Plans work?

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

Who qualifies for a DMP?

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:

  • Can’t afford to repay your debts in six months or less
  • Can afford to repay your unsecured debts in a reasonable amount of time, at a reduced rate

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.

How do I set up a Debt Management Plan?

While the DMP process can vary depending on who sets up the arrangement, most DMPs are set up as outlined below:

Get advice from a debt management company

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.

Approach your creditors with a repayment plan

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.

Start making a monthly payment towards your debts

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.

How we helped Paige

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

How long does a Debt Management Plan last?

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.

What debts can be included in a Debt Management Plan?

Debt Management Plans are designed to help you deal with non-priority debts, such as:

  • Student loans
  • Water bills
  • Benefits overpayments
  • Credit card debts
  • Personal loans

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

Will a entering a DMP affect my credit rating?

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.

Is it easy to live with a Debt Management Plan?

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.

Where can get more information on DMPs and other debt solutions?

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.

Advantages & disadvantages of a Debt Management Plan

Advantages

Protects you from creditors

Reduces monthly payments

Helps you avoid bankruptcy

Flexible plan

Deals with your unsecured debts

Disadvantages

Not legally binding

No debt write-off

Subject to creditor approval

Takes longer to complete

Not suitable for all debt types

Where can I get more advice on Debt Management Plan and other debt solutions?

To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 082 8086 or click the button below to get started