Debt Management Plans

A Debt Management Plan is a flexible and informal agreement between you and your creditors to pay all of your debts.

Debt management plans are usually used when either:

• you can only afford to pay creditors a small amount each month
• you have debt problems but will be able to make repayments in a few months

You can arrange a plan with your creditors yourself or through a a licensed debt management company for a fee. If you arrange this with a company:

• you make regular payments to the company
• the company shares the money out between your creditors

Get a Debt Management Plan

1. Set up a plan with a debt management company authorised by the Financial Conduct Authority (FCA). Find an authorised company.

2. The company works out your monthly payments. You’ll have to give details about your financial situation, eg your assets, debts, income and creditors.

3. The company contacts your creditors and asks them to agree to the plan (they don’t have to agree to offers of repayment but they do have to accept the payments).

4. As the plan is flexible you can review your monthly payments if your circumstances change.

5. Your credit rating will be affected as your creditors may issue default notices.

Unless stated in the agreement, your creditors can still:

• ask you to revert back to your full contractual payments at a later date
• take action to recover their money even if you keep up your payments

Costs

Some companies will charge:

• a set up fee
• a handling fee each time you make a payment

Make sure you understand the costs of your plan and how you pay for it.

Advantages of a DMP

• A DMP is an informal arrangement that avoids the need for formal insolvency procedures such as an IVA or bankruptcy
• You make one monthly payment
• Creditors will, in many cases, freeze interest and charges
• Your monthly debt repayments will be reduced to make them affordable
• There are no upfront fees and the service can be provided free of charge
• You can cancel your DMP at any point
• Illustrates that you are willing to tackle your debts
• Can be a short term solution to pay off debts at a more manageable rate

Disadvantages of a DMP

• A DMP avoids the need for any formal insolvency procedures such as an IVA or bankruptcy, although by being an informal arrangement, it does mean creditors are not obliged to accept the offer or can change their mind at any time
• Your credit rating may be affected. A DMP means you are making a reduced payment to your creditors and although this has been agreed by your creditors it will still be noted on your credit file
• Creditors may take further action to recover the debt, which may involve additional costs or charges. If a creditor has already commenced recovery or legal action, there is no guarantee that it will be suspended or withdrawn
• Your monthly debt repayments may be reduced to make them affordable, but this usually means you will repay your debts over a longer period, and if interest and charges aren’t frozen, it could also cost you more
• If you are a homeowner, creditors may seek a charging order to secure their debt against your property

Eligibility

Debt Management Plans can only be used to pay ‘unsecured’ debts, eg debts that haven’t been guaranteed against your property.

Your Responsibilities

Your plan can be cancelled if you don’t keep up your repayments. You need to maintain payments to your priority bills such as rent and council tax. There are restrictions on the expenditure for someone entering into a DMP.