Debt Management Plan (DMP)
A Debt Management Plan is an informal arrangement to repay your unsecured debts at a rate you can afford. You make one monthly payment to a DMP provider, who distributes it among your creditors.
How a Debt Management Plan works
A DMP provider works out a realistic budget with you, then contacts each creditor to propose reduced payments. Because a DMP is not legally binding, creditors are not obliged to accept it or to freeze interest – although many do once they see a fair budget and a sustainable offer. The plan continues until the debts are repaid in full or your circumstances change.
Who might a DMP suit?
- You can afford to repay your debts in full, just not at the rate creditors are currently demanding
- Your debts are unsecured (cards, loans, overdrafts, catalogues, arrears)
- You want flexibility – a DMP can be adjusted or ended if your situation changes
- You want to avoid a formal insolvency solution and the public record that comes with it
Fees and free alternatives
Some DMP providers charge a set-up fee and a monthly management fee taken from your payment; others provide the service free of charge and are funded by creditor contributions. Free DMPs are available from charities such as StepChange and PayPlan. A fee-charging DMP will take longer to clear the same debts, so it is important to understand what you are being charged and why before you agree to anything.
Advantages of a DMP
- One affordable monthly payment
- Creditors may agree to freeze interest and charges
- Flexible – not legally binding, can be changed or cancelled
- No public register and no court involvement
- Available throughout the UK
Disadvantages of a DMP
- Creditors can refuse the plan or continue adding interest
- Creditors can still take legal action or register defaults
- Repayment can take many years if the debts are large
- Your credit file will show reduced or missed payments and defaults
- Debts are repaid in full – nothing is written off
Alternatives to a DMP
If you cannot realistically repay what you owe within a reasonable period, a formal solution such as an IVA, a Debt Relief Order or bankruptcy might be more appropriate. Scottish residents can also consider the Debt Arrangement Scheme, which offers similar structure with legal protection.
Frequently asked questions
Is a DMP legally binding?
No. A DMP is an informal agreement. Creditors can withdraw from it, continue charging interest or take enforcement action, although most will cooperate while payments are maintained.
Will a DMP affect my credit rating?
Yes. Paying less than the contractual amount is recorded as arrears or default. Defaults stay on your file for six years. Lenders may be reluctant to offer new credit while you are in a DMP.
How long does a DMP last?
Until the debts are paid in full. Plans lasting under ten years are generally considered reasonable; if yours would take much longer, a formal solution may be a better fit.
Can I include council tax or HMRC debt in a DMP?
Arrears can be included, although these creditors have strong enforcement powers and may not accept reduced payments for long. A regulated adviser will usually prioritise these debts within your budget.
Want to know if this applies to you?
Free enquiry. No obligation. Regulated advice before any decision.