What is a debt management plan (DMP)?

A Debt Management Plan, or DMP for short, is an agreement between you and your lenders that allows you to pay back your debts in a way that’s affordable to you. Unlike other solutions, it is not legally binding and is designed to help those who are struggling with their unsecured debts.

You will agree to make a lower monthly payment towards your debts and will need to pay these until your debts have been cleared. This means your plan could last any reasonable amount of time, but they generally can last up to 10 years.

You can set one up yourself or through a debt management company. However, if you decide to use a third party, you may have to pay fees. In some cases, you may be able to get interest and charges frozen on the debts, but this would be the lender’s decision and isn’t guaranteed.

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Are there fees charged in a DMP?

If you decide to set up a DMP through a third party, there may be fees charged for administering your plan. For the most part, this will be taken out of the payments you make each month, but in some cases, it may have to be paid upfront.

There are companies out there that will set up an arrangement for you for free. However, this doesn’t mean that there are no fees for their services – they’re just paid by the lenders instead.

Regardless, any charges within your arrangement must be made clear to you before the agreement is put in place – as required by the Financial Conduct Authority (FCA). If they are not, then you must bring this to the attention of your DMP provider of the Financial Ombudsman Service.

DMP advantages and disadvantages

If you’re still unsure whether this is the right solution for you, here are the advantages and disadvantages of a DMP to help you in the right direction:


  • You’ll only need to make one payment towards your debts and it will be based on what you can afford
  • Once you are in a DMP, letters and calls from your lenders should stop
  • It’s flexible, meaning you can increase your payments if your situation changes for the better or decrease them if it worsens
  • It can help to improve your credit score, as long as you keep up with your payments
  • If you choose to use a third party, they will deal with your lenders on your behalf and make sure all payments are spread between them
  • Your debts will be clear once you have made all the payments


  • Your debts aren’t written off and you will have to pay back the balances in full.
  • As you will be making lower payments, you may be in your DMP for a long time
  • It is not guaranteed to be accepted by your lenders, nor is it guaranteed that they will freeze interest and charges
  • Court action can still be taken against you
  • It will be noted on your credit file until completed
  • Lenders are not prevented from contacting you
  • If there are fees charged to you, this can mean that you pay back more than your debt level.

The DMP process

There may not seem like much to the DMP process, but if you decide to enter into one on your own without the help of a debt management company, then it’s handy to know.

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Is a DMP right for you?

When deciding what debt solution is right for you, you’ll probably find that you qualify for more than one. As such, the best advice to see if a DMP is the best option for your situation is to seek advice from debt advisers.

Do your research, and make sure you arm yourself with as much information as possible before making your decision.

Budget and application

The next step to work out your budget to know what you can afford to pay towards your debts. You’ll need to consider all of your income and all of your outgoings before your debt payments to give you an accurate amount.

If you’re using a DMP company, they will help you with this. They will require you to send proof of these things along with all the details of the debts you wish to include in your plan.

The important thing here is to make sure that your budget is reasonable and affordable. If you are unsure how to do this, there are several tools out there to help you.


Now that you laid all the groundwork, it’s time to propose this to your lenders. There are templates available online that you can use to draft up a letter for this purpose to send to your lenders. DMP companies will do this on your behalf.

The companies you owe money don’t need to agree to what you offer, and this is where negotiation will come into play. You or your DMP provider may need to do a bit of back and forth in order to come to an agreement over your payments and your plan.

Life with a DMP

If your lenders agree to your DMP, then you are given the green light to begin making affordable repayments.

For those doing it on their own, you will then need to change all your payment amounts to each of the companies/people you owe money to. If you are using a DMP company, then you will need to cancel all your debt payments and arrange to make your agreed amount to them instead.

All you then need to do is keep on top of these until you have cleared your balances and you no longer owe anything to those included in your plan. Should your situation change at any point, it’s important that you communicate this to your lenders or DMP provider to allow any necessary changes to be made.

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A fresh start

Once you have made all your payments and your debts have been cleared, you are then able to begin afresh.

If you’ve done this yourself, then your lenders will be responsible for sending you confirmation that your accounts are paid and closed down. For those using a DMP company, they will send you a completion certificate to confirm this.

You may need to contact the credit reference agencies to update your credit file – and it make take some time for both your DMP and the debts to fall off your report. Once everything is updated, you will be able to go forward and begin to rebuild your credit score.