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Debt Management Plan

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A debt management plan, also known as a DMP, is an informal solution designed to reduce your monthly payments towards your debts.

What Is a debt management plan?

A Debt Management Plan is an agreement, negotiated by you or a third party, to lower your monthly payments to your creditors.

It isn’t legally binding, unlike other debt solutions, such as an Individual Voluntary Arrangement (IVA) or a Trust Deed. With a DMP, your monthly payments are proposed based on what you can reasonably afford.

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This is worked out through a breakdown of your monthly budget and the payments are usually paid over a longer period.

Payments can also be revised if your circumstances change, making a DMP a flexible solution.

Unlike some debt solutions, a DMP sees you repay your debt in full. Your creditors may also agree to freeze interest and fees on the debts included, but this is not guaranteed.

If you opt to go for a private debt management company, they will charge you a fee for negotiating and administering your DMP.

However, there are some debt charities that offer the service for free.

If your creditors agree to the reduced payments offered, all you need to do is keep up with your payments.

How does a Debt Management Plan work?

The exact nature of a debt management plan varies from case to case, but you can expect its course to follow these steps:

Select your DMP provider

You can negotiate a DMP with your creditors yourself, but if you need additional support, you can choose to use a third party.

If you opt to use a DMP company, an adviser will represent your interests, and remove the stress of direct contact with creditors.

A number of debt charities offer DMP services free of charge.

Work out your budget

Next, you must work out how much you can afford to pay in your monthly installments, by carefully analysing your budget.

If you choose to use a DMP provider, this will involve providing payslips, bills, and other documents, so that the amount you can afford to pay after essential costs can be calculated.

Submit a suggestion to creditors

Your budget will then be shown to your creditors, who will decide whether or not to accept your new monthly payments.

If they accept, they may also agree to freeze ongoing interest and/or charges as a gesture of goodwill.

If your creditors do not accept the new payment plan, you may be eligible for an alternative solution, such as a Trust Deed or Individual Voluntary Arrangement, bankruptcy or sequestration.

Make your new monthly payments

The final step involved in a Debt Management Plan is to make your new monthly payment.

You do not have to wait for your creditors to agree to your DMP before you start making reduced payments, however you may have to review your situation if they later reject your plan.

If you choose to use a DMP provider, you will make your monthly payment to them rather than directly to your creditors.

This means you have only one payment rather than several, which can make things much more manageable.

How long does a Debt Management Plan take to set up?

One of the benefits of a Debt Management Plan is how quickly it can take effect. With a DMP, you should be able to consolidate your debts into one monthly payment and reduce the amount you have to pay almost immediately.

Once you have figured out your budget and decided how much you can reasonably afford to pay towards your debt each month, you can start making that payment straight away.

The money will be spread evenly among your creditors, and you don’t have to wait for your creditors to agree to the plan before going ahead with it.

While a DMP gives you almost instant debt relief, you should be aware that your creditors may continue to request payments from you even after you have begun paying towards your DMP.

Your creditors will need time to review your proposal, agree to it, and update your information on their systems.

If your creditors do contact you in the meantime, you can simply respond that you have already sent them a proposal for their consideration, and are now paying back the amount set out in that proposal.

Am I eligible for a Debt Management Plan?

There’s no maximum or minimum debt level needed to enter a DMP, but there are some things to consider before applying.

A DMP is good for those who are struggling to keep up with their debt repayments, but who can afford to consistently pay smaller amounts over a longer period of time.

It’s also good for those whose circumstances are likely to improve over time and who have a steady and relatively stable income.

Before applying for a DMP, you should be sure that you will still be able to pay your priority bills, such as your mortgage/rent and council tax.

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What debts can be included in a Debt Management Plan?

Not all debts can be included in a DMP; it’s designed to help with non-priority debts. Debts suitable for this solution include:

  • Personal loans
  • Credit card debt
  • Overdrafts
  • Bank/building society loans
  • Payday loans
  • Store cards/credit
  • Money borrowed from friends/family

Debts that are unsuitable for a DMP include:

  • Council tax
  • Income tax
  • Court fines
  • National Insurance
  • Hire purchase contracts for essential items
  • Child support or maintenance
  • TV licence
  • Utility bills

Do Debt Management Plans hurt your credit?

It’s important to be aware that entering into a Debt Management Plan will usually have a negative impact on your credit score – the three-digit score that reflects your chances of being accepted for credit in the future.

When you enter into a DMP, you’re agreeing to pay a lower amount towards your debts each month that would normally be expected.

While this helps you lower your costs, reduced payments will show up in your credit report.

This can signal to lenders that you’re someone who has difficulty paying back what they owe, with the result being a lower credit rating.

It’s worth bearing in mind that failing to pay back your debts will hurt your credit score anyway, so even though a DMP might impact your credit score in short term, it could still be the best way for you to work towards long-term financial stability.

What are the advantages and disadvantages of a Debt Management Plan?


  • Your DMP won’t be recorded on an insolvency register
  • A DMP shows you’re willing to repay your debt in full
  • Creditors can freeze interest and charges on your debts
  • DMPs can be changed if your personal situation changes
  • A DMP will reduce monthly payments towards your debts
  • Your DMP provider will deal with creditors on your behalf


  • You will have to repay your debt in full with a DMP
  • Creditors may reject the offer of reduced payments
  • Your creditors can still take legal action against you
  • You may be contacted by creditors during your DMP
  • Some DMP providers charge fees for their services
  • Your credit score may be negatively impacted by a DMP

Is a Debt Management Plan a good idea?

Ultimately, whether a Debt Management Plan is a good option for you depends on your situation, but there are some broad criteria that might make you a good candidate.

If you are currently struggling to cover the cost of your monthly debt repayments, can’t keep on top of payments to multiple creditors, or you’d like a third party to deal with creditors on your behalf, a DMP may well be an option worth exploring.

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Frequently asked questions.

Need more info? Here are a few of our most frequently asked questions on this topic. If you don’t see the answer you’re looking for here, give us a ring – we’d love to help.


Your credit score will be affected by a DMP as it’s likely you’ll be paying less than the minimum payment amount detailed in your original credit agreement. While it isn’t always noted on your report, it can be flagged on it that your debts are being paid through the DMP.

You’ll find it difficult to apply for a mortgage or other form of finance while you’re in a DMP because of the affect it will have on your credit score. Once you’ve completed the plan and your debts have been cleared, this will become easier as your score will slowly improve.

Yes, it’s never guaranteed that the companies you’re in debt to will agree to your DMP offer. It’s also not guaranteed that they will freeze or reduce interest and charges, although declining is rare.

If you miss payments to your arrangement, the companies included may decide that they no longer agree to the DMP. If you find that you’re struggling to make payments to your DMP, you must contact your provider straight away.

As this solution is informal, there is nothing to legally say you have to include all your debts in a DMP. However, if you choose to leave out some debts and continue paying them yourself, it may affect the chances of the other companies agreeing to the plan.