Advice on a Debt Management Plan

We’re here to answer all your questions and help with difficult debts.

A Debt Management Plan can be a suitable solution for people struggling to manage their debts. This option will depend on your level of debt and how much you can afford to repay each month.

If you would like to know if you are suitable for a debt management plan call us today on 0800 085 0226 and a debt advisor will be happy to help you.

What is a Debt Management Plan?

A debt management plan is a debt solution which enables you to make an affordable monthly payment to your creditors via a debt management company. A debt management plan means you only have to make one monthly payment to one company, who will distribute the money on your behalf. Your debt management plan will last until all of your debt is repaid.

People living in Scotland may wish to consider the Debt Arrangement Scheme as it offers legal protection and is a similar solution to debt management plan.

How To Enter A Debt Management Plan?

A debt management plan, most commonly know as a DMP, is an informal debt solution, for a persons unsecured debt. A debt management plan normally lasts for as long as it takes to repay the debt in full. 

It is not legally binding and a creditor or debtor can usually stop the debt solution with 1 months notice. In a debt management plan a third party negotiates your monthly payments, this is turn makes your debt more manageable. Your payment will be divided between your creditors and similar to other debt solutions, the amount you pay each month will be based on your affordability (disposable income after paying essential living costs). 

The length of time someone is in a debt management plan will vary from person to person, depending on your debt level and affordability. 

A debt management plan is an informal debt solution it does not guarantee to freeze your interest and charges, this may also impact on how long the debt management plan will last for.

Once you meet specific criteria a proposal is submitted to your creditors.

It is always important, even when you are struggling with debt, to keep a good relationship with your creditors. It is within their interests to work with you in order to help you repay the debt owed.

What Debts Can Be Included

Only unsecured debts can be included into a debt management plan, such as:

  • Credit / store cards
  • Catalogues
  • Payday loans
  • Overdraft
  • Previous years council tax
  • Utility arrears

It’s important to stress than priority household bills must be paid, such as: 

  • Mortgage / rent
  • Council tax (current year)
  • Gas and electricity
  • TV Licence 

Benefits of a Debt Management Plan

  1. You will pay a monthly manageable sum to one company and they will distribute the money to your creditors on your behalf
  2. You may be able to get your interest and charges frozen
  3. A Debt Management Plan is an informal solution which means you are not tied in legally to the solution – you can usually leave a Debt Management Plan with a month’s notice
  4. You can increase or decrease payments if your salary changes
  5. You will be taking the first steps towards becoming debt free.

Negatives of a Debt Management Plan

  1. Your creditors do not have to accept your proposal
  2. Any spare income will be used towards the debt solution meaning you won’t have much disposable income
  3. You have to repay all of the money you owe – you can’t get any written off
  4. Some Debt Management companies will charge a fee for administering your case, however we can point you in the direction of free Debt Management Plans, if that is the best solution for you
  5. Freezing interest and charges is not guaranteed and court action may continue
  6. Repaying small amounts over a longer time may lead to an increase in the total debt to be repaid
  7. Your credit rating will be affected for 6 years
Please note that only unsecured debt is included in a debt management plan so you may not be debt free at the end of the plan if you have a mortgage. You must also ensure you continue to pay priority debts such as mortgage / rent and utility bills.A for profit debt management company will charge you a fee for administering your case.  A charity providing debt management plans will not charge you for the solution. This can save you, typically, between 10%-40% because all of your monthly contributions will go directly to your debt solution.

Criteria to enter a Debt Management Plan

  • You must have at least two different creditors

  • You must have unsecured debt of at least £5,000

  • You must have a disposable income of £100 or above each month

Help To Manage Debt

Debt Management Examples

Paul, 29 years old, Bradford
Paul came to us with multiple debts and was struggling to pay them all on time each month. He was able to make payments towards his debt just not enough to meet his contractual obligation. After doing an income and expenditure it was worked out that he could pay £250 a month towards all of his debt, making a debt management plan the best solution for him.
 
Paul owed £5,000 in total to his creditors but had stopped communicating with them and was worried about what they would say should he get in touch. Paul was happy to know he could deal with all of his debts by speaking to just one company. 
 
We gave Paul an estimated time when all of his debt would be paid, should all interest and charges be frozen. Paul also chose to go with a company that would not charge him.
Jim, 63 years old, Bournemouth

Jim had found his debt had grown to an unsustainable level, he was making the minimum payments however due to interest and charges the debt remained at the same level.

Jim called us requesting information on entering an IVA, because it would freeze his interest and charges. We explained that while that would be the case, he would in the end be paying back more than the debt he owed.

He decided that a debt management plan was the route he wanted to go and if all interest and charges were frozen he would be debt free 1 year earlier than if he entered an IVA. Jim felt a huge relief knowing that someone was dealing with his debt on his behalf.

Debt Management - Questions & Answers
Is A Debt Management Plan The Same As Debt Consolidation

No, a debt management plan doesn't involved taking out further credit. This is a new arrangement with your existing creditors, based on what you can afford to repay. 

Debt consolidation is when someone borrows money to pay existing debts.

Is A Debt Management Plan Legally Binding

At the start of your debt management plan, you will usually be asked to sign an agreement form. 

This gives the debt management company permission to contact creditors on your behalf.

The debt solution itself however is not legally binding and any party involved can usually change the agreement with 1 month's notice. 

Do I Need To Pay My Debt Management Plan During Christmas

Christmas, birthday's and holidays will be included in a person's income and expenditure, under sundries and emergencies, prior to entering the DMP. 

Can My Debt Management Plan Affect People I Live With

No, unless you have joint debt or joint financial products. 

If I Enter a Debt Management Plan Can I Be Made Bankrupt

Creditors are unlikely to declare you bankrupt because they will incur expensive fees. They are only legally allowed to declare you bankrupt in England, Wales and Northern Ireland if you owe them more than £5,000, in Scotland this is £3,000. 

The creditors must send you a formal demand to start the bankruptcy process. In the unlikely event you do receive this you should contact your DMP provider. 

Who Can Enter A Debt Management Plan?

To enter a debt management plan you must have a disposable income over £100 a month, unsecured debt of £5,000 and above and has two or more different creditors.

How Does A Debt Management Plan Work?

A debt management plan uses your disposable income (income minus expenditure) to make an affordable payment to your creditors each month.

What Is A Debt Management Plan?

A debt management plan is an informal agreement between you and your creditors where you agree to make a monthly contribution from your income towards your debts. Instead of having to pay several different creditors you would make the payment to one company who would distribute the funds to your creditors on your behalf.

Is My Interest And Charges Guaranteed To Be Frozen?

Only your creditors can agree to freeze your interest and charges. A debt management company will attempt to get your interest and charges frozen to enable you to effectively repay your debt.

As the solution is informal your creditors can start or stop your charges and interest at any time.

Will My Credit Rating Be Affected If I Enter A Debt Management Plan?

You will not be making the agreed contracted payments to your creditors. As a result your credit rating is likely to be affected, making it difficult to obtain further credit.

How Many People Are In A Debt Management Plan?

There are an estimated 500,000 people in the UK in a Debt Management Plan.

Can I Cancel My Debt Management Plan?

As a Debt Management Plan is an informal arrangement you can cancel the agreement, usually with 1 months notice but your creditors may revoke any agreement to reduce/freeze interest, therefore increasing the amount you owe.

You must not take out credit (above £500) whilst in the debt solution as this breaches the terms of your agreement.