Debt Management Plan (DMP)
A Debt Management Plan (DMP) is designed to make debt more manageable by rolling multiple debts into one affordable monthly payment. It’s not legally binding, but it can reduce creditor pressure and give you the breathing space you need to focus on your finances.
Do I Qualify
For an IVA?
Debt Management Plan (DMP)
A Debt Management Plan (DMP) is designed to make debt more manageable by rolling multiple debts into one affordable monthly payment. It’s not legally binding, but it can reduce creditor pressure and give you the breathing space you need to focus on your finances.
Do I Qualify
For an IVA?
What is a debt management plan (DMP)?
A debt management plan is an informal agreement between you and your creditors for reduced monthly payments to make paying off your debt more manageable.
This can be arranged by yourself or via a debt management company.
If you have decided to use a debt management plan provider, all unsecured debts such as credit card bills and personal loans can be included in one monthly payment. This is then distributed amongst the companies you owe money to.
What is a debt management plan (DMP)?
A debt management plan is an informal agreement between you and your creditors for reduced monthly payments to make paying off your debt more manageable.
This can be arranged by yourself or via a debt management company.
If you decided to use a debt management plan provider, all unsecured debts such as credit card bills and personal loans can be included in one monthly payment. This is then distributed amongst the companies you owe money to.
How does a debt management plan (DMP) work?
A debt management plan involves negotiating with your creditors for reduced interest rates and lower monthly payments.
This can provide immediate debt relief by reducing the amount you need to pay each month which can make it easier to afford and stay on track with your debt repayment plan.
Before starting a debt management plan, your income and expenses will be assessed to ensure any proposed payment plan is affordable for you.
A debt management company will negotiate with your creditors on your behalf and propose reduced payments towards your unsecured debts. They will try to negotiate for the interest and charges to be frozen.
You will make one consolidated payment each month to the DMP provider, who will then distribute it among your creditors.
You now make your reduced monthly payment towards your debts for the length of the DMP. You need to ensure you are making regular payments as agreed to avoid defaulting on the DMP.
It’s important to note that while a DMP can provide some financial relief, it will not eliminate or reduce the total amount owed. It also may take longer to pay off the debt as compared to other options like a debt consolidation loan.
How does a debt management plan (DMP) work?
A debt management plan involves negotiating with your creditors for reduced interest rates and lower monthly payments.
This can provide immediate debt relief by reducing the amount you need to pay each month which can make it easier to afford and stay on track with your debt repayment plan.
Before starting a debt management plan, your income and expenses will be assessed to ensure any proposed payment plan is affordable for you.
A debt management company will negotiate with your creditors on your behalf and propose reduced payments towards your unsecured debts. They will try to negotiate for the interest and charges to be frozen.
You will make one consolidated payment each month to the DMP provider, who will then distribute it among your creditors.
You now make your reduced monthly payment towards your debts for the length of the DMP. You need to ensure you are making regular payments as agreed to avoid defaulting on the DMP.
It’s important to note that while a DMP can provide some financial relief, it will not eliminate or reduce the total amount owed. It also may take longer to pay off the debt as compared to other options like a debt consolidation loan.
What Types of Debt Can be Included in a DMP?
Most unsecured debts can be included in a Debt Management Plan. These are debts not tied to an asset like a house or car, and they can usually be grouped into one affordable monthly repayment.
Debts that can be included in a DMP:
- Credit Cards
- Personal Loans
- Catalogues
- Payday Loans
- Overdrafts
- Store Cards
- Some Utility Bills
Debts that cannot be included in a DMP:
- Mortgage Arrears
- Secured Loans
- Car Finance
- Bailiff Debt
If you are unsure if a debt can be included in your DMP, our advisors will be more than happy to help.
What Types of Debt Can be Included in a DMP?
Most unsecured debts can be included in a Debt Management Plan. These are debts not tied to an asset like a house or car, and they can usually be grouped into one affordable monthly repayment.
Debts that can be included in a DMP:
- Credit Cards
- Personal Loans
- Catalogues
- Payday Loans
- Overdrafts
- Store Cards
- Some Utility Bills
Debts that cannot be included in a DMP:
- Mortgage Arrears
- Secured Loans
- Car Finance
- Bailiff Debt
If you are unsure if a debt can be included in your DMP, our advisors will be more than happy to help.
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DMP Alternatives Explained
A Debt Management Plan (DMP) is just one way of dealing with debt. Depending on your circumstances, you may want to consider:
Individual Voluntary Arrangement (IVA): A legally binding agreement that reduces your monthly payments and can write off unaffordable debt after around five years.
Debt Relief Order (DRO): A low-cost option for people with debts under £30,000, very limited assets, and little disposable income. After 12 months, eligible debts are cleared.
Bankruptcy: A formal process that can clear most debts, but it may involve giving up assets and has a longer-term impact on your credit rating.
How does a debt management plan affect you?
Whilst a debt management plan can provide some relief to your debt problems with reduced payments and potentially frozen interest, it does impact other aspects negatively that you need to be aware of.
Entering into a debt management plan will leave negative mark on your credit file. This is due to your monthly repayments now being lower than the minimum amount agreed between you and your creditors when you took out the credit.
However, if you have already missed payments or defaults on your accounts, you will have already negatively affected your credit rating.
As with any debt solution, there are positives and negatives towards entering debt management plans.
- Reduced monthly payment amounts based on affordability
- Interest frozen or reduced (not guaranteed)
- One affordable payment that covers your unsecured debts
- Negative impact on credit file
- Longer repayment period
- Creditors do not have to agree to the plan
- You can only include unsecured debts
How does a debt management plan affect you?
Whilst a debt management plan can provide some relief to your debt problems with reduced payments and potentially frozen interest, it does impact other aspects negatively that you need to be aware of.
Entering into a debt management plan will leave negative mark on your credit file. This is due to your monthly repayments now being lower than the minimum amount agreed between you and your creditors when you took out the credit.
However, if you have already missed payments or defaults on your accounts, you will have already negatively affected your credit rating.
As with any debt solution, there are positives and negatives towards entering debt management plans.
- Reduced monthly payment amounts based on affordability
- Interest frozen or reduced (not guaranteed)
- One affordable payment that covers your unsecured debts
- Negative impact on credit file
- Longer repayment period
- Creditors do not have to agree to the plan
- You can only include unsecured debts
Is a debt management plan a good idea?
If you are struggling to afford your minimum monthly payments and are at risk of falling behind, a DMP may be able to provide immediate relief with reduced payments.
However, it’s not suitable for everyone and there may be other options available that can provide a quicker solution to your debt problems such as a debt consolidation loan or Individual Voluntary Arrangement (IVA). It’s best to speak to a professional about all of your options before deciding on the best course of action for you.
Remember, a DMP will not reduce the total amount owed but only lower monthly payments until the full amount is repaid. It also has a negative impact on your credit file so it needs careful consideration before entering into one.
How much debt do you need for a DMP?
There’s no strict legal minimum to start a Debt Management Plan, but in practice they’re most suitable if you have at least £2,000 of unsecured debt spread across multiple creditors.
A DMP is designed for people who can’t keep up with their minimum payments but still have some disposable income available each month. If your debts are smaller or your budget is very tight, other solutions such as a Debt Relief Order (DRO) may be more appropriate.
Is debt management right for me?
If you have a debt problem and are unsure whether a debt management plan is right for you, it’s best to speak with a professional debt advisor.
It is important you are fully aware of all the options available to you. Debt advisors can assess your financial situation fully and give debt advice on the best option for you.
This could be a DMP or other debt solutions such as Individual Voluntary Arrangements (IVA) or Debt Relief Orders (DRO).
How to apply for a debt management plan
If you do not wish to arrange the debt management plan on your own, a debt management plan provider can negotiate with creditors on your behalf.
To be able to negotiate and set up a plan on your behalf, the DMP provider must have the necessary licence permissions with the Financial Conduct Authority (FCA).
Debt Management Plan FAQs
It is not guaranteed that your creditors will accept the plan as they are not obligated to do so.
However, reputable DMP providers who negotiate with creditors on your behalf often have good success rates in getting plans accepted.
A DMP will last for as long as it takes for you to pay back your debts in full.
This will all depend on your debt level, repayment amount and whether creditors agreed to freeze interest and charges.
Yes, you can still have a bank account and manage your finances while in a DMP.
If you miss a payment, it is important to inform your DMP provider immediately.
Your creditors may start contacting you for missed payments and it’s important that your DMP provider can liaise with them on your behalf to ensure the plan stays in place.
In some circumstances, creditors will agree to freeze interest and charges.
However, this is not guaranteed as creditors do not have to do so as they do with other debt solutions such as an IVA.
A debt management plan doesn’t stop you from obtaining a mortgage. It does however make it more difficult, due to the impact it has on your credit file.
Yes a joint DMP can be obtained for you and your partner.
It works in the exact same way, with one payment made each month to cover all of your creditors.
If you are struggling to make the agreed-upon payments, your DMP provider can renegotiate with creditors on your behalf to try and lower the payments.
This works in the same way if your financial circumstances have improved, you may be able to increase the amount you pay in your regular repayments to become debt free in a quicker period.
No, you cannot use your credit cards while on a DMP. Most creditors will ask that they are cut up and not used while in the plan.
A debt management plan is not legally binding, and therefore does not give you the legal protection an IVA does.
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Get information today on your available options
Take the first steps to becoming Debt Free!
- One lower monthly payment
- Write off 75%* of unaffordable debt
- Freeze interest & charges
- Stop legal action including bailiffs
- Receive FREE well-being sessions
100% FREE ADVICE
Get information today on your available options
Take the first steps to becoming Debt Free!
- One lower monthly payment
- Write off 75%* of unaffordable debt
- Freeze interest & charges
- Stop legal action including bailiffs
- Receive FREE well-being sessions