Free vs fee-charging Debt Management Plans
The plan is the same idea either way. The difference is how much of your payment reaches your creditors.
Applies to: England, Wales & Northern Ireland
What to do now
- Check any firm on the FCA register.
- Ask for the total cost of the plan in writing.
- Get a second opinion from a free adviser — free debt advice.
How free plans are paid for
Free providers are charities or not-for-profit services. Many creditors pay them a voluntary contribution from the money collected, sometimes called “fair share”. You pay nothing extra, and all of your monthly payment goes towards your debts.
What fees cost you
A fee-charging plan takes its fees out of the same monthly payment. If you can afford £200 and £40 goes on fees, only £160 reaches your creditors — and the plan runs a fifth longer. Some firms take a larger fee at the start, which means creditors receive little in the first months and may be less willing to freeze interest.
What FCA rules require
Running a DMP for a fee is a regulated activity. Under the FCA’s CONC rules, before you agree, a firm must:
- set out its fees, including any arrangement, monthly, management or cancellation fees, and the total cost of the service where it can;
- give you a source of impartial information on the range of debt solutions;
- refer you to a not-for-profit debt advice body in some situations — for example if you cannot afford its fees.
Firms must also treat you fairly and give advice based on your circumstances. If something goes wrong, you can complain to the firm and then to the Financial Ombudsman Service.
Questions to ask any provider
- Do you charge anything, and what is the total cost over the life of the plan?
- How much of my first three payments will go to my creditors?
- Why would a free plan not work for me?
- Can I cancel without a fee?
- Are you authorised by the FCA, and what is your firm reference number?
Switching to a free provider
You can usually move an existing fee-charging plan to a free provider. Contact the free provider first so there is no gap in payments, then cancel the old plan in writing. Your creditors will be told the new arrangements.
Is a fee ever worth paying?
The plan itself works the same way. Some people prefer a particular firm’s service, but you never need to pay for a DMP, and free providers will look at all options, not only a DMP. Weigh any service difference against the fees in pounds.
This page explains how the solution works. It is not a recommendation, and it cannot tell you whether it suits you — a free, regulated debt adviser can look at your full situation.
You never have to pay for debt advice. MoneyHelper (government-backed), StepChange, National Debtline and Citizens Advice all give free, confidential advice with no obligation.
Common questions
Are free DMPs as good as paid ones?
The plan works the same way. Free providers are funded by creditor contributions, so all of your payment goes to your debts, whereas fees are taken from your payment on a paid plan.
How do I know if a DMP company is legitimate?
Check it on the FCA register. A firm charging for a DMP must be FCA authorised and must tell you its fees before you sign.
Can I move my DMP to a free provider?
Usually yes. Contact the free provider first so payments continue, then cancel the fee-charging plan in writing.