What is a Debt Management Plan (DMP)?
The DMP is designed to simplify your debt repayments, which in turn, can help you regain control of your finances. However, it’s not a legal agreement, like an IVA, so you or your creditors can withdraw from the plan at any time.
How it works
With a DMP, you arrange with a specialist debt management company (or DMP provider) to make a single monthly payment to them which they then share amongst the creditors included in the DMP. A DMP is tailored to your budget and can easily be changed if your circumstances change.
A DMP is an informal compromise, so you’ll need to consider very carefully whether it’s the right solution for you. Unlike a legally-binding debt solution, such as an IVA, a DMP does not prevent your creditors from withdrawing or taking other legal remedies, but it is more straightforward for you to renegotiate, or even change to a different solution, if you don’t feel as though it’s helping you.
Most debt management companies charge fees for their services which are deducted from the monthly payments you make. Ultimately you will pay these fees because the monthly payments will continue until all of the debts have been settled.
There are some providers which do not make deductions for their fees, although these providers generally expect you to do more of the work involved in setting up the DMP.
Benefits of a DMP
A Debt Management Plan is just that – a plan designed to help you manage your debt.
No need to contact your creditors
You don’t have to contact your creditors – most DMP providers do that for you, saving you the hassle. This benefit is more likely to be available with fee-charging providers.
Interest and charges may be frozen
Your creditors may agree to freeze further interest and charges. If all of your creditors agree to this, your debt won’t get any bigger.
One payment a month
You make just one repayment each month – this is then distributed to your creditors on your behalf, after any fees payable to the DMP provider have been deducted.
Adapts to meet your needs
As your circumstances change, so can your repayments – taking some of the worry away.
Your Debt Management provider will review your plan regularly and offer advice to make sure your debts are handled professionally.
Disadvantages of a DMP
There are a few things to bear in mind with a DMP. Have a look at the list below to understand some potential downsides. As with any debt solution, a DMP needs careful consideration and expert advice.
Your credit rating
A DMP will usually have a negative impact on your credit rating because you are no longer paying the contractual amount to your creditors. If you’re already struggling with debt, it’s likely that this is already the case.
With a DMP, none of your debt is written off. Instead, it’s all repaid, just in an easier-to-manage way.
Your interest and charges
Because your DMP is only an informal agreement, rather than a legally binding one, it’s possible some of your creditors will still charge interest and charges and they can change their mind later even if they initially agree to freeze them.
Your debt management company will do everything they can to get all your creditors to agree to your DMP. However, some creditors may not want to participate and any that don’t will need to be managed separately by you, and are more likely to continue to charge interest and chase you for payment.
If you’re paying less every month, but your debts aren’t written off, you’ll obviously be paying off the money you owe for longer, especially if interest and charges are added by any creditors.
It’s really important that you keep up with your monthly payments. Failure to do so can put you right back where you started.
You will also need to co-operate with any reviews which the DMP provider performs in order to check that the DMP is still an appropriate option for you to continue with.
Some DMP providers charge fees for their work which are deducted from the payments you make before the money is shared between your creditors, which would mean that it takes longer to repay your creditors through the DMP. Any fees charged should be explained up front as well as any specific terms and conditions you must comply with.
We don’t provide services relating to applying for a DMP. However, when you speak to us, we will make sure you are aware if it is a potential option for you to consider.