Debt Management Plan

Debt Management Plan

Are you struggling to keep up with your debt payments on credit cards, store cards, or loans? A debt management plan (DMP) could be the right option, with many providers available to offer this debt solution. Read on to find out more about what a debt management plan is, how it works, and what the benefits are.

What is a Debt Management Plan?

A Debt Management Plan, or DMP is an informal arrangement in which you repay your creditors at an agreed but affordable amount each month until your debts are paid off.

Arranging a DMP

You will normally instruct a company to help you to arrange this.  They will take details of your income and expenditure and contact your creditors.  You will pay the company the agreed amount and they will pay this (less their fees if applicable) to your creditors, usually monthly.


There may be fees to pay for this service and such fees are normally deducted from your payments.  This means that creditors are receiving less than you are paying.  Certain companies will offer a service without a cost to you, albeit they may charge the creditors a fee, but this will be separate from any money that you pay so it has no impact on you.


A debt management plan may be the correct debt solution for you if you can still afford to repay something after paying for essentials such as food, transport, and utilities. Since you are paying less than your contractual payment, your creditors might still chase you for payment and you will be in default.

What are the advantages and disadvantages of a debt management plan?

Advantages of a Debt Management Plan

  • One affordable monthly payment
  • As it is an informal solution, it means that a lot of the formal process required in an IVA or bankruptcy are avoided
  • In many cases your creditors will stop any action against you
  • The amount you pay to your creditors every month will be reduced
  • No upfront fees

Disadvantages of a Debt Management Plan

  • Your credit rating will almost certainly be affected
  • You will have to pay all your debts in full so this may take a long time
  • Creditors may continue to chase payment
  • Creditors do not have to freeze interest and charges
  • Your home and other assets are not protected from your creditors

Debt Management Plan FAQs

What debts can be included in a DMP?

In a DMP, you can include unsecured debts, so most everyday debts are likely to be included; credit card, payday loans, overdraft, catalogues and personal loans can all be included. However, secured loans and certain other debts, will need to be paid separately.

Can I cancel a debt management plan?

Unlike some other debt management solutions, a debt management plan isn’t legally binding. This means that if your plan isn’t working for you, you’re free to cancel at any time.  You will still owe creditors the outstanding balance so you may need to look at alternative debt solutions.

Can my creditors still contact me?

Unfortunately, as this is an informal debt solution your creditors may still chase you for payment. However, whoever manages your Debt Management Plan will try their best to ensure that this doesn’t happen.

Will a DMP affect my credit rating?

It is very likely that entering a Debt Management Plan will affect your credit rating.

What are priority and non-priority debts?

Priority Debt 

A priority debt refers to the type of debt where you are liable to lose something or suffer a consequence if you don’t pay. For example, if you fail to pay your electric bill, you could be forced to have pre-payment meter fitted. This makes it more important than a non-priority debt, therefore it is essential you pay your priority debt first.

Non-Priority Debt 

As the name suggests, a non-priority debt is a debt that is not considered to be a high priority. This includes credit card debts, unsecured loans and overdrafts, as well as the money you owe individuals. Just because they are not considered ‘priority debts’ does not mean that you don’t have to pay them.

How is a monthly payment calculated for a DMP?

Your income and expenditure will be reviewed, this will take into account standard living costs, so you have enough in your budget to pay household bills and any living expenses you might have.

The additional money left over within your budget will go towards paying your debts.

In order for a DMP provider to do this accurately, they will need access to certain documents such as bank statements and wage slips, as it will allow them to determine a realistic amount for you to pay back each month.

Remember the aim of the debt management plan is to strike a balance that both you and the creditor finds acceptable so you are no longer under any financial stress.

How long does a debt management plan last?

There is no set time frame for a debt management plan. The duration of the plan depends on two things:

  • The amount of debt you owe.
  • The amount you are able to pay each month.

Every 12 months a debt manager provider will conduct a new review of your finances. Should your financial situation change or you have a budgeting plan which allows you to increase the monthly payments, you will be able to pay off the debt quicker than originally anticipated.