What Is a Debt Management Plan (DMP)?
A Debt Management Plan – or DMP – is an informal repayment plan between you and your creditors.
It’s a good option if you’re struggling with debt but you’re still capable of affording to pay:
- Less drastic than formal insolvency solutions
In this guide, we’ll explain the advantages of a DMP, how the process works, and what alternative options are available.
We are unable to offer Debt Management Plans, learn more about options for dealing with your debts with additional details provided on how you can obtain one.
Contents
What Are the Advantages of a Debt Management Plan?
Every Debt Management Plan is unique, so the exact advantages of each proposal are different. But what kind of perks can you expect?
Generally speaking, DMPs offer the following benefits:
- Can stretch out repayments for up to 10 years
- Instalments are affordable and based on your budget
- Potential to freeze interest and charges on debts
- No formal restrictions
- Don’t have to deal with creditors
DMPs are distinct from other insolvency solutions because they are not legally binding. This means you’re not subject to any rules and restrictions.
However, the fact that DMPs are not contractual is also their biggest disadvantage—creditors can change their minds at any time. This also means DMPs cannot write off any of your debts.
What Is the Debt Management Plan Process?
The Debt Management Plan process is quite straightforward when compared to some formal insolvency procedures.
You’ll need to get in touch with a debt management company, certified to provide DMPs. You can do this through your local Citizens’ Advice.
They’ll then propose the plan to your creditors. If you’re accepted, you’ll then make regular payments until your debt is paid off in full.
You can find out more about the DMP process by exploring the tabs below.
All DMPs must be set up and managed by a licenced debt management company.
Take your time when choosing your DMP provider. It’s best to find a company certified by the Financial Conduct Authority and a trade association. This ensures their service is of a certain standard, protecting your interests going forward.
Citizens’ Advice can help you with this.
Once you’ve selected the right company, you’ll need to show them your monthly income and expenditures, along with your debts and assets. They’ll then advise you if a DMP is right for you.
Your DMP provider will work with you to draw up a proposal.
This will be based on your monthly budget, ensuring that it is affordable for you while still being attractive to creditors.
Various terms can be included in the proposal—for example, you could propose freezing interest on your debts to allow you to cope with the repayments.
Once you’re happy with your proposal, your DMP provider will deliver it to your creditors on your behalf.
They’ll explain the terms and the reasoning behind your proposed monthly repayments. Ideally, all creditors will agree.
If you can get the support of your creditors, your DMP will begin.
You will then begin making monthly payments until your debts are paid in full. Unlike other insolvency procedures, DMPs cannot write off liabilities.
You make one monthly payment to your DMP provider. They will then distribute this amount between your creditors.
Which Debts Can Be Included in a Debt Management Plan?
Debt Management Plans can include most kinds of unsecured debts, such as:
- Overdrafts
- Credit card debts
- Payday loans
- Personal loans
- Catalogue credit
Unsecured creditors don’t have a claim over your assets – like your home and vehicle – so they’ll normally be willing to agree to a DMP.
Which Debts Cannot Be Included in a Debt Management Plan?
Debt Management Plans cannot cover secured debts where creditors have collateral:
- Court fines
- Income arrears
- Council Tax arrears
- National Insurance arrears
- TV Licence arrears
- Mortgage arrears
- Rent arrears
- Any other liabilities secured on your property or assets
Secured creditors will not work with you to arrange a repayment plan – instead, they will claim your assets to get a quicker return.
What Are My Responsibilities in a Debt Management Plan?
Your responsibilities are relatively few compared to other formal insolvency solutions. This is because a DMP is not set out in law.
You won’t have to attend regular meetings or follow a list of restrictions.
Your only responsibility is to continually meet your monthly repayments. This will help keep creditors on board and prevent them from pursuing you for your debts.
Make sure you don’t miss any payments. If you do, your creditors might terminate the agreement and start sending debt collectors your way.
What Are the Alternatives to a Debt Management Plan?
If you have a large amount of debt or are struggling to repay secured debts, a DMP probably isn’t right for you.
Thankfully, there are a range of alternative insolvency solutions available for you to consider.
An Individual Voluntary Arrangement is a formal insolvency solution which allows you to deal with your debts without surrendering your assets.
It functions as a repayment plan, allowing you to pay off your debts gradually over 5-6 years; at the end of this period, your remaining debts are written off.
It’s the ideal choice for individuals with larger debts who don’t want to lose their hard-earned property.
Despite the stigma, bankruptcy is one of the best ways to get back on track to a debt-free life.
Once you’ve declared yourself bankrupt, your valuable assets–such as your house and vehicle–will be seized, but after just 12 months, all of your debts will be written off.
A Debt Relief Order is very similar to bankruptcy.
However, it is specially made for those with little assets and property who cannot afford to declare themselves bankrupt.
Your outstanding debts are written off 12 months after entering into a DRO, allowing you to make a fresh start.
Speak to an Expert
If you’re struggling to manage your personal finances, you need to speak to an insolvency practitioner as soon as possible. Early action prevents debts from spiralling and keeps your options open.
Our expert team will assess your situation and guide you to the right solution for you. You may find that a DMP is enough to get your debts under control, or it could be that you need the help of a more formal solution like an IVA.
Get in touch today to book a free, no-obligation consultation.
FAQs
You’ll generally need to get each of your creditors to agree. One rogue creditor pursuing charges could make it impossible for you to keep up with your proposed DMP repayments.
This means that the more creditors you have and the larger your debt, the lower your chances of mounting a successful DMP proposal.
If you’re unable to get a DMP, you should start thinking about formal insolvency procedures.
You could opt for an Individual Voluntary Arrangement, bankruptcy, or a Debt Relief Order.
Make sure you get proper advice before making any decisions. Our team has over 30 years of experience in the field and can advise you as to what is your next-best option.
Debt management companies generally charge an initial set-up fee and deduct a handling fee from each monthly contribution. To minimise the length of your repayment period, you should aim to find a reliable, trustworthy company with reasonable fees.
Make sure to find a debt management company that is FCA-certified. These providers must deliver a certain standard of service.
For more advice on arranging a DMP, read this guide from Citizens’ Advice.
Creditors often adhere to DMPs as they know applying unnecessary pressure to compliant debtors reduces their chances of getting repaid.
That being said, DMPs are not legally binding, and creditors can terminate the agreement at any time, even if you keep up with your repayments.
We are unable to offer Debt Management Plans, learn more about options for dealing with your debts with additional details provided on how you can obtain one.
