What is a Debt Management Plan (DMP)?

A debt management plan (DMP) is one way to deal with your debts. It’s essentially an informal arrangement that is not legally binding, to pay back your creditors a lower monthly repayment until the debt is paid off. Sometimes a write-off or settlement can be negotiated upfront or during the plan. However, most involve paying the full amount back.  A debt management program is the same as a debt management plan. For more advice on debt management plans, please see our debt management page.


How does a debt management plan work?


A DMP will take into account the income and capital you have. If for example, you receive redundancy payment this will be used to make offers to your creditors. Creditors are fully entitled to add interest and charges to the balance on your debts which may result in an overall increase in the time taken to repay your debts.

Also, some debt management providers may charge you a debt management fee to manage your debts. This money would therefore not go towards repaying your debts.


What debts are included in a DMP?


A DMP deals with Non-Priority debts, these are debts like store cards, catalogues, eBay debt and overdrafts. A financial statement showing income and daily living costs will have arrears payment plans noted as essential payments before making any payments to the DMP. If you contact a free debt advice charity the first thing they will do is prepare your financial statement. They will then look at how everything is best organised. From this, they will know all the possible methods of dealing with the debts that you have. 

Please note, council tax is a priority and is not included as part of the DMP.


Can I get a free debt management plan?


Yes, debt management plans should be free. Although this is not the case with many debt management companies, which may charge a fee. For more information on free debt management plans, please visit our DMP section.


My debt management plan has been cancelled, what now?


If an organisation is no longer willing to work with you then you can make an arrangement to pay your remaining creditor directly. Work out how much you can afford to pay and put forward your offer to the creditor. If you cannot make an arrangement to their satisfaction then they are able to apply for a charging order to secure the debt against your house.


Can I transfer to another debt management plan?


You need to check the terms and conditions of the agreement you set-up with your current debt management company. This will show whether you are ‘tied’ into their service for a specific time period. If you are this may result in a cancellation fee being charged. If you are not then there is no reason why you should not be able to cancel the agreement you have. Then you can join a free debt management company instead.


What if my debt management company fails to keep their promise?


If the debt management company you are using promises to clear your debts, this could be considered as fraud. Any debt management company is obligated (under the Office of Fair Trading’s Debt Management Guidance) to inform you, before you sign up with them, that there is no guarantee of creditor cooperation in a debt management plan and that your creditors can continue to pursue enforcement action against you if they so wish.

If they didn’t tell you this before you entered the contract with them then you have a case against them. To make a complaint, you can either call the Financial Ombudsman Service or Consumer Direct, which will then put you in touch with your local Trading Standards office.

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