What is a Debt Management Plan?

A debt management plan (DMP) is an informal agreement made between borrowers who are struggling to pay back their debt and lenders to whom they owe.

DMPs are suitable for people who are struggling with debt payments. This could be either a short or a long term problem. It could be that the borrower can afford to pay a sum each month but not the full contractual payment, or that they are currently struggling with debt issues but can afford to make repayments after a few months.

How Does a Debt Management Plan Work?

Debt management plans work by combining outstanding lines of credit over time and making it easier for you to repay them.

The type of DMP you set up depends on your debt level but generally, DMPs work the same way. First, your financial circumstances (your income and outgoings) are assessed.

Then, a reasonable monthly payback amount is worked out based on your finances. This amount is calculated after factoring in your household bills and basic living expense to ensure that the payment is within your means.

This amount is also assessed routinely to make sure that you can still afford your repayments. When you set up a DMP, your lenders might choose to freeze your interest, charges, and penalties but that is not guaranteed.

Being in a Debt Management Plan

The duration of your DMP depends on the total amount you owe and how much you can afford to repay. If your debt level is higher, and your contributions are lower, your DMP could last longer. If you owe a smaller amount, are able to contribute more, or have a change of circumstances where you can increase how much you can afford, your debts will be repaid sooner. That is why it is important to speak to a debt expert before you decide to set up a debt management plan.

Once you enter a DMP you may not be able to spend as you currently do, but your plan will ensure you have a reasonable stand of living as well as making regular payments to repay your outstanding debt. To ensure that you are able to meet the terms of your DMP, you may have to make changes to your spending habits.

Since debt management plans are not a formal solution, they will not be recorded on any public register. This means that nobody has to know about your DMP unless you choose to disclose it to them.

Applying for a Debt Management Plan

You can negotiate a debt management plan by yourself, approach a debt charity (free DMP), or pick a licensed debt management company (fee-paying DMP), to negotiate it on your behalf.

If you pick a provider, you can pay them the amount and they would distribute it to your creditors on a monthly basis. However, we strongly recommend that you seek debt help from an expert before arranging a DMP.

A debt expert can help you go over your options and decide whether a DMP is the best solution for you. If it is, they can refer you accordingly. But if a DMP is not the best course of action for you, they can guide you and assist you in selecting a more suitable alternative.

Get Debt Help
Here at Debt Help, we can help you decide whether a DMP is the right debt solution for you. Get in touch with our debt experts for detailed guidance and resources. 

Types Of Debts Covered With The Help Of Government legislation

Most debts can be included in an IVA and your repayments reduced.

Loans & Overdrafts

Credit Cards

Benefits Overpayment

Council Tax

Debts with a Court Judgement

Rent, Gas and Electricity Arrears

Catalogue and Buy now, Pay later Debt

Loans & Overdrafts

Credit Cards

Benefits Overpayment

Council Tax

Debts with a Court Judgement

Rent, Gas and Electricity Arrears

Catalogue and Buy now, Pay later Debt

DMP Benefits

  • Affordable Repayment Plan:  A DMP is set up only after taking into consideration your income and household budget. This practice ensures that you are paying your creditors only what you can afford to pay.
  • The Convenience Factor:  If a debt management company is handling your DMP, you do not have to go through the hassle of tracking multiple payments. You will only be required to make one monthly payment to your DMP provider.
  • Increased Flexibility: If there is a change in your financial circumstances, your debt management plan can be altered accordingly to ensure that your payments are still affordable.
  • Help with Arrears: If you are lagging on household bills, you can include those arrears to your DMP – but you will still have to cover further usage with monthly payments.

Debt Management Plan: Key Considerations

  • Creditor’s Discretion:  Your creditors can choose to freeze your interest, but they are not legally obligated to do so.
  • Informal Arrangement:  Since a debt management plan is informal, it might not stop your creditors from pursuing you for recovery of outstanding debt. Similarly, a DMP does not keep creditors from taking court action against you.
  • Not All Debts Are Included:  Debts covered by DMP include:
  • Overdrafts
  • Personal Loans
  • Money You Borrowed from Friends and Family
  • Bank or Building Society Loans
  • Credit Card, Store Card and Payday Loans
  • Catalogue, Home Credit, or Store Credit Debts
  • Arrears with utility companies can be included with DMPs but you must maintain ongoing payments
The following debts are usually not covered by DMPs:
  • Gas and electricity for any usage you have after the DMP is put in place to address your arrears
  • TV Licenses
  • Court penalties and fines
  • Child support
  • Council tax
  • VAT, National Insurance, and Income Tax
  • Mortgage
  • Rent
  • Loans secured against your residence
  • Essential hire purchase agreements

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Trading address, Initial Business Centre, Wilson Park, Manchester, M40 8WN. Debt-help.org helps individuals find solutions to get out of debt and, whilst we do not provide advice, we can help you understand all the possible options and guide you through the process.

Money Helper is an impartial service set up by the Government. They provide free debt counselling, debt adjustment and credit information services.

Trading address, Initial Business Centre, Wilson Park, Manchester, M40 8WN. Debt-help.org helps individuals find solutions to get out of debt and, whilst we do not provide advice, we can help you understand all the possible options and guide you through the process.

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