What is a Debt Management Plan?

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By Crispin Bateman
Updated on Saturday 14 November 2020

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When dealing with debts that have spiralled out of control and are causing you to worry, asking for help is a good idea.

In fact, it’s a great idea!


What is a debt management plan (DMP)?

How do they work?

The pros and cons

Do DMPs hurt your credit?

How long does it stay on your credit?

Are debt management plans a good idea?

DMP vs IVA: What's the difference?

Do I qualify for a DMP?

What is a debt management plan?

A debt management plan, or DMP, is a government-backed system for taking control of your debts and paying them off. It involves having a third-party debt advisory service work with you to determine your relevant creditors and the amounts you owe, and for them to take over contact and arrangement of repayments on your behalf.

With a DMP, you are not having your debts written off, but are undertaking an agreement to pay them back in full at a rate that is sensible for you.

How do debt management plans work?

Stage one – choosing a provider

The first step to bringing your debt under control is to find a DMP provider to help you. Many of these will charge a fee for their services, often a one-off arrangement fee and sometimes a fee per payment processed, but there are charities that exist who can help for free.

This provider must be FCA (Financial Conduct Authority) approved. If you are in any doubt, ask them or search on the FCA website to check their credentials. Never work with unapproved debt management companies.

Your provider will work with you until your debts are paid off in full. They will need to know everything about your finances and will ask you to tell them everything about your debts, assets, income, outgoings etc. This can be time-consuming and often emotionally difficult but is a very important step in understanding your situation.

Step two – analysing your debt

Not all debt is suitable for a debt management plan, and remember, a DMP is not writing off debt, but is, instead, help to clear debt.

DMPs are for non-priority, unsecured loans only. This includes:

It does not include:

  • Mortgage

  • Rent arrears

  • Income tax, national insurance or VAT

  • Council tax

  • Gas and electricity bills

  • Court fines

  • Secured vehicle loans such as hire purchase or personal contract purchase

  • Lease agreements

  • Loans secured on your property

Once you have a detailed account of all your relevant debt, your DMP provider will be able to move to the next stage.

Step three – budget and time

The debt management company will work with you to determine how much you can afford to pay per month, and how long you will have to continue to pay to clear all the outstanding debt. These numbers may have to be revised as agreements are hammered out with your creditors, but a baseline is needed to start.

In most cases, you will have to pay at least £5 a month towards your debt, and the longest the DMP can work for will be 10 years.

£5 per month for ten years only represents £600 of debt, so if your debt is larger than £600 in total, you will be expected to find more than £5 each month. A £6,000 total debt, for example, would require a commitment of £50 per month for the full ten years.

Your DMP provider will help you find a suitable middle-ground that works within your means and if that is impossible, they will be able to advise you on alternatives to the debt management plan.

Step four – communication and agreement

On your behalf, the management company will contact all your relevant creditors to work out a plan that will suit you.

They will try to convince your creditors to help, explaining that the DMP shows your commitment to pay back what you owe. In most cases, this means the creditor will agree to freeze any interest (and sometimes to roll back some already accrued) to help you get back on track.

However, it is important to understand that they do not have to. It is a negotiation and creditors are quite within their rights to respond negatively to the DMP. Some may even demand an immediate repayment of the debt in full and refuse to negotiate further. Here, the skills and experience of your chosen debt management provider come into play, as they work on your behalf to reassure the creditor and reach a reasonable agreement.

For the DMP to be finalised and put in place, all creditors must agree to its terms.

Once the DMP company has negotiated the plan, they will come back to you and inform you of the outcome.

Step five – starting the plan

At this stage, you have a workable plan with a regular monthly payment that you can afford. It remains up to you to keep up with this agreed repayment and transfer the money appropriately to the DMP provider at the agreed time. They will then use this money and pay your creditors as agreed.

You will only ever have to pay (and speak to) the DMP company. It is their job to see the money is shared as they have organised with the different creditors.

Step six – finishing the DMP

It may take years, but eventually the credit will all be repaid, and you will be free to move on with your life, released of the burden of debt.

Debt management plans pros and cons

If you are struggling with your debt, then the pros of a DMP greatly outweigh the cons.


1. The lifted weight. Debt makes people feel anxious. If you have been in debt for a long time, then you may not even realise how much of your daily headspace is taken up with money worries. The mental health significance of moving to a debt management plan and being able to see the light at the end of the tunnel is so great that it warrants the first place on this list of positive effects. Being freed from debt can completely change your life around and while the initiation of the DMP doesn’t mean you are free from debt; it does bring a welcome reassurance that everything is going to be alright.Your creditors will stop bothering you. Once an agreement is found, you will no longer receive direct communication from them asking for repayments, nor will you need to make payments to them or fear them in any way.

2. Reduced monthly payments. Your DMP provider will work to get the payments down enough that you can legitimately afford to pay them. There are limitations, and you may be forced to budget your finances more tightly than you would otherwise want, but the plan will take less each month than the combined total of your previous arrangements.

3. An interest freeze. Though such help is optional, many of your creditors will agree to stop charging future interest on your accounts, giving you the breathing space to pay them off without worrying that you are chasing an impossible goal.

4. Avoiding insolvency. If your debt management plan fails or you don’t look at one in the first place, you may be forced into an insolvency agreement such as an IVA or bankruptcy. By putting in place a suitable debt management plan, you resolve the situation before such extreme measures.

5. Improving your credit score. In the long run, a debt management plan will improve your credit score and leave you significantly more solvent at the end. Of course, you should avoid utilising this fact to put yourself into another spiral of debt!


1. Not legally binding. While a DMP is respected in the credit industry, it doesn’t represent a legal order and as such, there is nothing stopping your creditors from deciding part-way into the agreement that they are not happy with it and begin contacting you again in order to try to obtain the remainder of their debt. This situation is unlikely with most major financial institutions but less reliable lenders or individuals, such as family, may feel they don’t have to abide by the agreement.

2. It is a negotiation, not a forced agreement. There is no legal weight behind a DMP to force a creditor to accept the terms. Some may state that they plan to keep adding interest on to the debt despite the best argument from your provider, for example. Worse still, some may outright reject the plan and unfortunately, unless all creditors agree, the DMP cannot be put forward.

3. A debt management plan is not a quick solution. DMPs are lengthy processes. It can take a long time to come to a complete arrangement (during which time, interest is likely accruing), and many years to pay off the debts.

4. You must pay it all off. Debt management plans are not insolvency agreements. In one case, this is a point for the pro side, but on the other hand, it means you do not get debt written off. Every penny of the borrowings must be paid back in full, plus the DMP itself can add additional fees to the total. Overall, a DMP is more costly than many more serious insolvency options.

Do debt management plans hurt your credit?

The relationship between a DMP and your credit score is a complicated one. It both harms your credit report and heals it, at once being a plus point and a black mark.

Improving your credit history

Making regular payments, and not missing any outstanding payments is a strong way to improve your credit score. The DMP will help you do exactly this, with a regular payment to the provider and no multiple missed payments to your creditors. It will take away bounced direct debit charges to the bank, unforeseen overdraft issues, missed credit card payments, defaulted store card payments and more.

In this way, the debt management plan is a very positive influence on your credit report over time.

Harming your credit score

Many lenders will see a DMP on your credit report and immediately reject your credit application. This is very likely with companies like mortgage lenders who are likely to either outright turn down a mortgage application or request an almost unrealistic deposit value (often up to 35%!). Home rental agencies will see you as a poor risk and advise landlords against renting properties to you, and even mobile phone companies might decide to prevent you from getting a phone contract.

Another issue is the payments to the DMP provider themselves. If you are meeting these on time every month, your credit will heal as described above, but miss a planned payment and the impact on your credit score can be substantial.

Fully defaulting on a debt management plan is an horrific black mark on your credit history and will reopen all the credit you took out the plan to sort, meaning a slew of potentially negative events slicing through your finance history.

Taking out a DMP means knowing that until it is paid off in full, you are bound by it and responsible for taking it seriously.

How long does a debt management plan stay on your credit?

Like all items on your credit history, a DMP remains part of the report for six years. This means, it can have an effect for a full sixteen years from the start – ten years while you diligently pay off the borrowing, plus a further six before it had disappeared from the agency files.

While this can seem like a huge length of time, you will find it passes easily, especially if your plan is reasonable and isn’t putting a strain on your monthly finances.

Are debt management plans a good idea?

For anyone struggling with debt and unable to cope, a debt management plan offers a realistic way out without turning to extreme measures such as bankruptcy or an individual voluntary agreement (IVA).

It is always worth speaking to a debt advisor specialist before going to a DMP provider. There are plenty of free services for you to call, and not only will a debt advisor be able to explain more about debt management plans with you, they will also help diminish your worries regarding your debt – often putting into perspective something which seems insurmountable.

What’s the difference between a debt management plan and an IVA?

In simple terms, a DMP can be seen as an informal arrangement where you try to solve the problems without legal intervention, where an IVA is a more serious formal and legally binding solution.

The three other main differences are:

- With a DMP, you pay off your creditors in full. With an IVA, much of your debt is written off.

- A DMP doesn’t affect your other assets (such as a house or car) which you are likely to be able to keep, an IVA may force you to sell these assets to cover debts.

- The impact of a DMP on your future credit is significantly less than that for an IVA.

Do I qualify for a debt management plan?

There is no criteria needed to qualify for a plan – it is a voluntary solution where the only real factor is whether you can currently afford your repayments. If you are struggling, it doesn’t matter if your debt is £300 or £30,000, it can still feel debilitating and help is there for you in the form of a debt management plan.

Where do I get a free debt management plan?

At Compare UK Quotes, we work hard to provide the best financial advice in the UK and our team are busy behind the scenes finding the right solution for you.

We haven’t yet conducted enough research to confidently pick out any of the debt management plan online companies as the best, though this research is ongoing. Whichever you pick, however, it is important that you check their credentials with the FCA register.

For all the finest personal finance advice, stick with Compare UK Quotes! Check out our library of articles on everything from car leasing to online banking – and please do share anything of interest with us on social media!

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