If you’re struggling to meet repayments on money you owe, you could consider setting up a debt management plan. Check if it’s the right option for you and do some research to find the best provider to set up and run your plan.
About debt management plans
A debt management plan is an agreement between you and your creditors (the businesses you owe money to) to make a set monthly payment. The plans are managed by companies known as debt management plan ‘operators’ or ‘providers’ who negotiate with your creditors and manage the payments for you.
Your monthly payment is based on how much you can afford to pay. This payment is then distributed fairly between all your creditors.
Starting a debt management plan means you are making a new promise to repay your debts in full.
When your debt management plan is being set up, your creditors will sometimes agree to freeze any interest charges. However, they don’t have to agree to this and they don’t have to agree to your plan at all. If they don’t, they can also continue to contact you, ask for payment or even take you to court.
Debt management plans can only be used to pay ‘unsecured’ debts, for example, money you owe that hasn’t been guaranteed against your property.
Some companies will charge you a fee for this while others give their services for free. Get advice before setting up a plan with a provider. Many organisations offer free and independent advice.
Advantages of debt management plans
Advantages to a debt management plan include:
- making one regular monthly payment allows you better control over your finances
- your creditors may agree to freeze interest and charges on your debt and may stop other action like taking you to court (although they don’t have to)
- peace of mind – in many cases, you will no longer be contacted by your creditors or debt collectors
- if you finish the plan, your unsecured debts will be cleared
Disadvantages of debt management plans
Disadvantages of a debt management plan include:
- your debts must be repaid in full – they will not be written off
- creditors don’t have to enter into a debt management plan and may still contact you asking for immediate repayment
- mortgages and other ‘secured’ debts are not covered by a debt management plan
Affording a debt management plan
You can only enter into a debt management plan if you have some money left over every month once all your essential expenses have been paid.
It’s a good idea to draw up a budget, including your monthly income and all your essential monthly household expenses, for example, your mortgage, rent, utility bills and 'hire purchase' payments.
If you have a very small amount left over after all these have been paid– or nothing at all– you should consider other ways to manage your debts.
Choosing your debt management plan provider
When choosing a debt management plan provider, you should make sure that:
- the provider is licensed by the Financial Conduct Authority (FCA)
- the provider discusses all the possible options available to you to deal with your debt problem
- you’re told clearly at the start how much it will cost to arrange the plan and who will pay that cost
- you understand what will happen if the provider stops running the plan for you because you’ve missed payments
- you’ve checked with other providers to make sure you’re getting a good deal
- Consumer Credit Register (FCA website)
Check the terms of your plan
Before starting a plan, the operator should make clear to you the terms and conditions, including:
- how much money you’ll be expected to pay each month and for how long
- the reasons the provider might stop operating the plan for you, for example, if you don’t make the required monthly payments
Get free advice about your debt
Setting up a debt management plan is an important financial commitment. Get advice to make sure it’s the right option for you.
You can get free and independent advice on debt management plans – or any kind of debt problems– from organisations likeAdvice NI.
- Dealing with debt problems
More useful links
FAQs
A DMP may be a good option if the following apply to you: you can afford your living costs and have a way to deal with any priority debts, but you're struggling to keep up with your credit cards and loans. you'd like someone to deal with your creditors for you. making one set monthly payment will help you to budget.
Does a DMP hurt your credit? ›
The notation signifying your DMP activity does not have a negative effect on your score going forward – in fact, it may suggest to lenders that you actively work to pay all of your debts to the best of your ability.
Can I keep a credit card on a debt management plan? ›
Can I use a credit card while on a debt management plan? Creditors typically require that credit card(s) included in a DMP be closed to prevent additional charges. You may be allowed to keep one card open and off your plan for emergency purposes.
What happens after 6 years on a debt management plan? ›
What happens when my DMP is finished? The debts associated with your DMP may still stay listed on your credit report until the six-year period is up from when they were added – if they have defaulted or there are CCJs associated with them, for example – but the marker for your DMP will be removed.
Do most creditors accept DMP? ›
Sometimes a creditor will refuse to deal with a DMP provider. This could be because the creditor doesn't want to accept the reduced payments or sometimes it could be because they've objected to you using a fee-charging provider, which would mean there's less money to pay the debts you have with them.
Can you buy a house while on a DMP? ›
When Can I Buy a Home? Most lenders aren't concerned that you're working through a debt management plan unless lenders write off part of what you owe.
What happens if I pay off my DMP early? ›
You'll also want to notify your creditors of your decision so you can discuss the path forward. Pay off your debts. There's generally no penalty for making extra payments on your DMP, and if you can afford to pay off all of your balances at once, that'll end your agreement early. Stop making payments.
What debts Cannot be included in a DMP? ›
Debts that cannot be included in a debt management plan (DMP) are those that are considered 'priority debts' such as mortgages and secured loans, student loans, court fines, and child support payments.
Does a DMP show on your credit file? ›
Your DMP may show up on your credit reference file. Some creditors may ask for a note to be put on your file to say that you have a DMP. This would reduce your chances of getting credit if you applied for it while on your DMP, as it would show you've had trouble keeping up with repayments.
What is the maximum debt for a debt management plan? ›
There isn't a fixed maximum debt level for a DMP. What's more important is whether the plan can help the debtor manage and clear their debts in a reasonable amount of time. If someone has a very high level of debt, there is a chance that either the monthly payments or the duration of the DMP would be unrealistic.
DMPs don't include priority debts. These are debts that have been secured against your home and other assets, as well as utility bills or Council Tax. You'll need to prioritise payments to these in your budget. These must be paid in accordance with the original agreement.
What is the downside to debt relief? ›
Debt relief programs and strategies aim to resolve credit issues caused by built-up debt. But, much like the debt itself, the relief option you choose will impact your future finances. You could be left with hefty fees or even more damage to your credit score.
Are debt management plans legit? ›
Some debt management companies are legitimate nonprofit credit counseling agencies, but many aren't. Common debt management scams and abuses by scammer credit counseling agencies include: failing to pay creditors on time under the terms of the plan. not paying creditors at all and keeping the deposits you make.
How long does a debt management plan affect your credit rating? ›
How long does a DMP stay on your credit file? Debts will stay on your report for six years, starting from the date they're paid off or defaulted. A DMP means you'll repay your debts more slowly, so your score may be negatively impacted for longer.
Will a debt management plan affect my bank account? ›
While a DMP does not directly affect your bank account, it can lead to changes in your monthly payments. When you enter a Debt Management Plan, your monthly repayments are often reduced. This means that the amount of money going out of your bank account each month may decrease, leaving you with more disposable income.
