what is a debt
management plan?

Debt management plans are useful if:

  • You can afford to pay something towards your debts but can’t afford the full payments your creditors are expecting.
  • You have debt problems but are unable to afford the full repayment for a period of time.
  • You do not want to enter a formal solution.
  • You are struggling to keep on top of your current repayments and need to re-structure to regain stability.

You can arrange a plan with your creditors yourself or through a licensed debt management company for a fee. If you arrange this with a company you make one repayment to the company and they divide the money to your creditors.

You may incur charges or fees from a company to set up a debt management plan however there are some free services you can find through the Money Helper service, their details are provided at the bottom of the page.
A debt management plan is an informal solution and it aims to put all of your existing creditors ideally into one monthly manageable payment for you.

one affordable payment

To the debt management plan company.

change the amount you’re paying

You can change the amount you are paying if your situation changes.

creditors can freeze interests

Sometimes this can happen but they do not have to do so.

certain organisations will do this free of charge

You can contact Money Helper for more information.

no need to speak to lenders

Your debt management provider will negotiate with lenders on your behalf.

short term solution

A DMP can be used as a short-term solution.

everyone needs to be on board

For the DMP to be effective all creditors must agree to the arrangement offered.

it’s not a free service

Most providers will charge a fee for this service which may vary depending on the provider.

thawing out

Interest and charges are not guaranteed to be frozen.

impact on credit rating

Your credit rating will be affected.

it’s a marathon not a sprint

In order to repay your debt in full whilst also making reduced, more manageable repayments, the term of the agreement may be longer or the total amount repayable higher.

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how to get a debt management plan

1. get advice

Speak to one of our friendly advisors and we’ll assess your situation.

2. figure out your options

Your advisor will discuss which solution is best for you.

3. make a plan

We’ll work out a plan and ensure you’re comfortable with it before speaking to your lenders.

4. start your journey

If your plan is agreed, your loan will be set up and you can start your journey to debt freedom.

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Your debt management plan (DMP) finishes when:

  • You’ve fully paid off your debts.
  • You’re able to go back to making full payments again.

Usually, a DMP might affect your credit rating, especially if you miss payments or pay less than the agreed minimum amount.

But here’s the good part, even if you’re paying less than what was initially agreed, sticking to your DMP payments shows future lenders that you’re taking responsible steps to repay your debts. This is better than not making any payments at all. Once your DMP ends, you can start working on improving your credit score.

There’s no specific amount of debt required for a debt management plan (DMP), but creditors consider certain factors before agreeing to one. They’re more likely to approve a DMP if:

  • You’re having difficulty making your agreed repayments after covering your essential living expenses.
  • You’re able to allocate some money toward repaying your debts each month.
  • The monthly payment you can afford will enable you to clear your debts within a reasonable timeframe.
  • You don’t have sufficient disposable income to settle your debts entirely within six months.

A debt management plan (DMP) isn’t listed separately on your credit file. Instead, each debt included in your DMP is designated as either ‘AP’ (arrangement to pay) or ‘defaulted’. A debt marked as ‘AP’ stays on your credit file for six years from the date it was settled, while a defaulted debt remains for six years from the first recorded default. Consequently, some or all of the debts marked as defaulted may have already vanished by the time your DMP concludes.

For the debts that remain on your credit file after completing your DMP:

  • They should all show a balance of zero, indicating you owe nothing.
  • They’ll be marked as settled (if they didn’t default) or satisfied (if they defaulted).
  • Even with these debts on your credit report, managing your finances responsibly over time can help improve your credit score. Having zero balances and settled debts also enhances your chances of obtaining new credit at lower interest rates.

Creditors are likely to agree to a debt management plan if they see it as the best way to get their money back. We’ll tell them how much you can afford to pay each month, along with details of your income and essential expenses. This shows them that you don’t have any extra money to pay them more than what’s being offered. Each creditor will decide separately whether to accept the reduced monthly payment. But in most cases, they do. 

If you’re having trouble keeping up with your debt management plan (DMP) payments, please get in touch with us as soon as possible. It’s important to not stop making payments suddenly. If you do, your creditors won’t receive the expected money, and they might decide that the DMP isn’t effective. They could then start demanding full payments again. 

We understand that people’s situations can change. You might find that you have less money left over at the end of the month to allocate towards your debts. This could be due to losing your job or the increasing cost of living. Whatever the reason, we’re here to help. We can explore negotiating with your creditors to reduce your DMP payments. 

To get started with setting up your debt management plan (DMP), we’ll need details about your financial situation. Initially, we’ll ask about your income, essential expenses, and debts. It’s essential to provide proof of these amounts, so it’s helpful to gather relevant documents beforehand. These documents may include:

  • Wage slips
  • Benefit award letters
  • Utility bills
  • Council tax letter
  • Bank statements
  • Recent statements from your creditors

Once we have all the necessary information, it typically takes a few weeks to establish a DMP.

If you’re currently renting a property, having a debt management plan (DMP) won’t be a problem if you’re paying your rent and any rent arrears as agreed with your landlord. 

But if you’re in a DMP and looking to rent a new place, landlords and letting agents usually check certain financial information that’s publicly available, like bankruptcy details or court judgments. 

It’s worth noting that information about DMPs isn’t publicly available. Landlords and letting agents can’t see your credit report, which has more detailed information about your debts, without your permission. 

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Visit Money Helper, to help you manage your money and for further advice.

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