A debt management plan with unsecured creditors
What is a debt management plan?
A debt management plan (DMP) is an informal arrangement with your creditors to repay the debts with a reduced monthly payment over a number of years, usually no more than 10 years.
Key characteristics
Payments are made until the debt is cleared in full or until you are able to make the full repayments again. The arrangement is made on your behalf by a third party (debt management company) who will also negotiate the reduced payments with your creditors and distributes your available income. The repayments to creditors are based on what you can afford after a realistic financial statement including your income and spending has been prepared.
A debt management company will give you an estimate of how long the plan will last. They will also review the plan every 6-12 months. The creditors will expect to be given regular updates of your income and spending.
Some commercial debt management companies will charge fees for putting together and managing a plan whereas other companies act as non-for-prof organisation and will not charge you for the service.
Advantages
- The debt management company will help you review your personal and household expenditure, prepare your plan and put your case to the creditors.
- The debt management company will negotiate with creditors on your behalf, so offers are more likely to be accepted and interest frozen than if you try to do this yourself.
- You may be able to reduce or increase your payments if your circumstances change.
- You make single payments usually each month to the debt management company that administer all payments to your creditors.
- Creditors may be prepared to write off the balance of what you owe after a period of time if you have shown that you have made every effort to pay them back as much as you can, and you have maintained regular payments to the debt management company.
Disadvantages
- The debt management company can guarantee that your creditors accept proposal or freeze interest.
- The debt management plan is an informal arrangement and is not binding on creditors who refuse to take part in it. However, the creditors can refuse to accept any payments made to them.
- Some debt management companies charge fees for their services.
- You remain liable to pay your debts until they are paid in full.
- Creditors could still take debt recovery and legal action against you.
- A plan can last for several years, usually up to 10 years. If interest and charges cannot be frozen for the full length of the plan, then the total amount you end up paying under the plan could be more than the original amount of your debts, and could extend the lifetime of the plan.
How we can help
We can provide general information and advice on debt management plans. However, we don’t provide debt management plans as a part of our service. You can contact these organisations for further advice.
Reputable fee-charging debt management companies with good professional standards are usually members of The Debt Resolution Forum and The Debt Managers Standard Association.
If you wish to know where to get free debt counselling and debt management services you should contact the Money Advice Service. If you need assistance with setting up a debt management plan you can contact StepChange Debt Charity or National Debtline where you will be able to get help free of charge.
All debt management plan providers that work with consumers regardless of their fee-charging structure must be authorised and regulated by the Financial Conduct Authority.